| Article ID | Journal | Published Year | Pages | File Type |
|---|---|---|---|---|
| 5100521 | Journal of Financial Economics | 2017 | 56 Pages |
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.
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Authors
Jonathan Brogaard, Terrence Hendershott, Ryan Riordan,