Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/43255
Full metadata record
DC FieldValueLanguage
dc.contributor.authorHendershott, Terrenceen_US
dc.contributor.authorJones, Charles M.en_US
dc.contributor.authorMenkveld, Albert J.en_US
dc.date.accessioned2009-05-06en_US
dc.date.accessioned2010-12-15T09:22:38Z-
dc.date.available2010-12-15T09:22:38Z-
dc.date.issued2008en_US
dc.identifier.piurn:nbn:de:hebis:30-62202-
dc.identifier.urihttp://hdl.handle.net/10419/43255-
dc.description.abstractAlgorithmic trading has sharply increased over the past decade. Equity market liquidity has improved as well. Are the two trends related? For a recent five-year panel of New York Stock Exchange (NYSE) stocks, we use a normalized measure of electronic message traffic (order submissions, cancellations, and executions) as a proxy for algorithmic trading, and we trace the associations between liquidity and message traffic. Based on within-stock variation, we find that algorithmic trading and liquidity are positively related. To sort out causality, we use the start of autoquoting on the NYSE as an exogenous instrument for algorithmic trading. Previously, specialists were responsible for manually disseminating the inside quote. As stocks were phased in gradually during early 2003, the manual quote was replaced by a new automated quote whenever there was a change to the NYSE limit order book. This market structure change provides quicker feedback to traders and algorithms and results in more message traffic. For large-cap stocks in particular, quoted and effective spreads narrow under autoquote and adverse selection declines, indicating that algorithmic trading does causally improve liquidity.en_US
dc.language.isoengen_US
dc.publisher|aGoethe University, Center for Financial Studies (CFS) |cFrankfurt a. M.en_US
dc.relation.ispartofseries|aCFS Working Paper |x2008/41en_US
dc.subject.jelG10en_US
dc.subject.ddc330en_US
dc.subject.keywordLiquidityen_US
dc.subject.keywordAlgorithmic Tradingen_US
dc.subject.keywordMicrostructureen_US
dc.subject.stwWertpapierhandelen_US
dc.subject.stwElektronisches Handelssystemen_US
dc.subject.stwMarktliquiditäten_US
dc.subject.stwAktienmarkten_US
dc.subject.stwMikrostrukturanalyseen_US
dc.subject.stwUSAen_US
dc.titleDoes algorithmic trading improve liquidity?en_US
dc.type|aWorking Paperen_US
dc.identifier.ppn599235055en_US
dc.rightshttp://www.econstor.eu/dspace/Nutzungsbedingungenen_US
dc.identifier.repecRePEc:zbw:cfswop:200841-

Files in This Item:
File
Size
645.73 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.