High frequency trading and ghost liquidity
Degryse, Hans; De Winne, Rudy; Gresse, Carole; Payne, Richard (2018), High frequency trading and ghost liquidity, 35th Annual Conference of the French Finance Association (AFFI), 2018-05, Paris, France
TypeCommunication / Conférence
Conference title35th Annual Conference of the French Finance Association (AFFI)
MetadataShow full item record
De Winne, Rudy
Louvain School of Management
Dauphine Recherches en Management [DRM]
Cass Business School - City University London
Abstract (EN)We measure the extent to which consolidated liquidity in modern fragmented equity markets overstates true liquidity due to a phenomenon that we call Ghost Liquidity (GL). GL exists when traders place duplicate limit orders on competing venues, intending for only one of the orders to execute, and when one does execute, duplicates are cancelled. We employ data from 2013, covering 91 stocks trading on their primary exchanges and three alternative platforms and where order submitters are identified consistently across venues, to measure the incidence of GL and to investigate its determinants. On average, for every 100 shares pending on an order book, slightlymore than 8 shares are immediately cancelled by the same liquidity supplier on a different venue.This percentage is significantly greater for HFTs than for non-HFTs and for those trading as principal. Overall, GL represents a significant fraction of total liquidity, implying that simply measured consolidated liquidity greatly exceeds true consolidated liquidity.
Subjects / KeywordsGhost Liquidity; High Frequency Trading (HFT); Algorithmic Trading (AT); Fragmentation
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