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High-Frequency Trading Patterns around Short-Term Volatility Spikes

Todd G. Griffith, Bonnie F. Van Ness and Robert A. Van Ness
The Journal of Trading Summer 2017, 12 (3) 48-68; DOI: https://doi.org/10.3905/jot.2017.12.3.048
Todd G. Griffith
is an assistant professor of finance at Utah State University in Logan, UT
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Bonnie F. Van Ness
is a professor of finance at the University of Mississippi in University, MS
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Robert A. Van Ness
is a professor of finance at University of Mississippi in University, MS
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Abstract

This study examines high-frequency trading patterns around intense episodic spikes in firm volatility. We provide evidence that high-frequency traders (HFTs) participate in more transactions as liquidity suppliers and in fewer transactions as liquidity demanders during extreme short-term firm volatility events than in the minutes leading up to these events. In fact, the supply of liquidity by HFTs increases as volatility episodes grow in intensity. In addition, we find greater increases in high-frequency market making when order flows are balanced during volatility episodes, relative to when order flows are unbalanced. The results are robust to alternative event identification strategies and exchange listings. Our findings suggest that the transactions of HFTs neither initiate nor exacerbate the extreme firm-level volatility episodes observed in this article.

TOPICS: Quantitative methods, volatility measures

  • © 2017 Institutional Investor, LLC
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The Journal of Trading: 12 (3)
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High-Frequency Trading Patterns around Short-Term Volatility Spikes
Todd G. Griffith, Bonnie F. Van Ness, Robert A. Van Ness
The Journal of Trading Jun 2017, 12 (3) 48-68; DOI: 10.3905/jot.2017.12.3.048

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High-Frequency Trading Patterns around Short-Term Volatility Spikes
Todd G. Griffith, Bonnie F. Van Ness, Robert A. Van Ness
The Journal of Trading Jun 2017, 12 (3) 48-68; DOI: 10.3905/jot.2017.12.3.048
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