Abstract
We examine the effects of high-frequency traders (HFTs) on liquidity using the September 2008 short sale-ban. To disentangle the separate impacts of short selling by HFTs and non-HFTs, we use an instrumental variables approach exploiting differences in the ban's cross-sectional impact on HFTs and non-HFTs. Non-HFTs’ short selling improves liquidity, as measured by bid-ask spreads. HFTs’ short selling has the opposite effect by adversely selecting limit orders, which can decrease liquidity supplier competition and reduce trading by non-HFTs. The results highlight that some HFTs’ activities are harmful to liquidity during the extremely volatile short-sale ban period.
| Item Type: | Journal article |
|---|---|
| Keywords: | High frequency trading, Short selling, Liquidity |
| Faculties: | Munich School of Management > Institute for Financial Innovation and Technology |
| Subjects: | 300 Social sciences > 330 Economics |
| ISSN: | 0304-405X |
| Language: | English |
| Item ID: | 107102 |
| Date Deposited: | 13. Sep 2023, 16:52 |
| Last Modified: | 13. Sep 2023, 16:52 |
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