Algorithmic trading in turbulent markets
Does Algorithmic Trading (AT) exacerbate price swings in turbulent markets? We find that stocks with high AT experience less price drops (surges) on days when the market declines (increases) for more than 2%. This result is consistent with the view that AT minimizes price pressures and mitigates tra...
- Autores:
- Tipo de recurso:
- Article of journal
- Fecha de publicación:
- 2020
- Institución:
- Universidad de Bogotá Jorge Tadeo Lozano
- Repositorio:
- Expeditio: repositorio UTadeo
- Idioma:
- eng
- OAI Identifier:
- oai:expeditiorepositorio.utadeo.edu.co:20.500.12010/12136
- Acceso en línea:
- https://doi.org/10.1016/j.pacfin.2020.101358
http://hdl.handle.net/20.500.12010/12136
- Palabra clave:
- Algorithmic trading
Order imbalance
Turbulent markets
Volume-weighted average price
Price swing
Síndrome respiratorio agudo grave
COVID-19
SARS-CoV-2
Coronavirus
- Rights
- License
- Acceso restringido
| Summary: | Does Algorithmic Trading (AT) exacerbate price swings in turbulent markets? We find that stocks with high AT experience less price drops (surges) on days when the market declines (increases) for more than 2%. This result is consistent with the view that AT minimizes price pressures and mitigates transitory pricing errors. Further analyses show that the net imbalances of AT liquidity demand and supply orders have smaller price impacts compared to non-AT net order imbalances and algorithmic traders reduce their price pressure by executing their trades based on the prevailing volume-weighted average prices. |
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