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The role of algorithmic trading in stock liquidity and commonality in electronic limit order markets

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dc.contributor.authorMoriyasu, Hiroshi
dc.contributor.authorWee, Marvin
dc.contributor.authorYu, Jing
dc.date.accessioned2018-05-23T05:36:19Z
dc.date.issued2018-04-12
dc.description.abstractUsing the adoption of the Arrowhead trading platform in January 2010 as an exogenous event, we investigate the effects of algorithmic trading on stock market liquidity and commonality in liquidity under different market conditions on the Tokyo Stock Exchange. After controlling for endogeneity, we find algorithmic trading increases stock liquidity by narrowing spreads and increasing market depth. Furthermore, algorithmic trading increases commonality in liquidity at both high and low frequency. These findings appear to arise due to the reduction in monitoring costs. Further analysis reveals that, following large market declines, the effect of algorithmic trading on spreads and market depth weakens while the effect on commonality in stock liquidity intensifies.en_AU
dc.description.sponsorshipWe gratefully acknowledge financial support from the UWA Business School, Faculty of Economics at Nagasaki University and Japan Society for the Promotion of Science (JSPS KAKENHI Grant Number 21330078).en_AU
dc.format.mimetypeapplication/pdfen_AU
dc.identifier.issn0927-538Xen_AU
dc.identifier.urihttp://hdl.handle.net/1885/143580
dc.publisherElsevieren_AU
dc.rightshttp://www.sherpa.ac.uk/romeo/issn/0927-538X/..."Author's post-print on open access repository after an embargo period of between 12 months and 48 months" from SHERPA/RoMEO site (as at 21/05/18). This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/en_AU
dc.rights.urihttp://creativecommons.org/licenses/by-nc-nd/4.0/
dc.sourcePacific-Basin Finance Journalen_AU
dc.subjectAlgorithmic tradingen_AU
dc.subjectLiquidityen_AU
dc.subjectCommonality in liquidityen_AU
dc.subjectMarket declineen_AU
dc.titleThe role of algorithmic trading in stock liquidity and commonality in electronic limit order marketsen_AU
dc.typeJournal articleen_AU
dcterms.accessRightsOpen Accessen_AU
local.contributor.affiliationWee, M., ANU College of Business and Economics, The Australian National Universityen_AU
local.contributor.authoruidu5150747en_AU
local.identifier.ariespublicationu4485658xPUB1916
local.identifier.doi10.1016/j.pacfin.2018.04.004en_AU
local.publisher.urlhttps://www.elsevier.com/en_AU
local.type.statusAccepted Versionen_AU

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