High-frequency trading during flash crashes: Walk of fame or hall of shame?

We show that High Frequency Traders (HFTs) are not beneficial to the stock market during flash crashes. They actually consume liquidity when it is most needed, even when they are rewarded by the exchange to provide immed
We show that High Frequency Traders (HFTs) are not beneficial to the stock market during flash crashes. They actually consume liquidity when it is most needed, even when they are rewarded by the exchange to provide immediacy. The behavior of HFTs exacerbate the transient price impact, unrelated to fundamentals, typically observed during a flash crash. Slow traders provide liquidity instead of HFTs, taking advantage of the discounted price. We thus uncover a trade-o↵ between the greater liquidity and efficiency provided by HFTs in normal times, and the disruptive consequences of their trading activity during distressed times.
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Author:Mario Bellia, Kim Christensen, Aleksey Kolokolov, Loriana Pelizzon, Roberto Renò
URN:urn:nbn:de:hebis:30:3-533600
URL:https://ssrn.com/abstract=3560238
Parent Title (English):SAFE working paper series ; No. 270
Series (Serial Number):SAFE working paper series (270)
Publisher:SAFE
Place of publication:Frankfurt am Main
Document Type:Working Paper
Language:English
Year of Completion:2020
Year of first Publication:2020
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2020/03/25
Tag:flash crashes; high-frequency traders (HFTs); liquidity provision; market making
Issue:March 2020
Pagenumber:68
Institutes:Wirtschaftswissenschaften
House of Finance (HoF)
Center for Financial Studies (CFS)
Sustainable Architecture for Finance in Europe (SAFE)
Dewey Decimal Classification:330 Wirtschaft
JEL-Classification:G10 General
G14 Information and Market Efficiency; Event Studies
Sammlungen:Universitätspublikationen
Licence (German):License Logo Veröffentlichungsvertrag für Publikationen

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