Liquidity Providers in “Extreme” Periods: High Frequency Machines vs. Human Electronic and Floor Traders

62 Pages Posted: 3 Jun 2014 Last revised: 11 Jan 2024

See all articles by Vikas Raman

Vikas Raman

Lancaster University - Department of Accounting and Finance

Michel A. Robe

University of Richmond - E. Claiborne Robins School of Business

Pradeep K. Yadav

University of Oklahoma Price College of Business

Date Written: October 12, 2023

Abstract

We use U.S. crude-oil futures data with coded trader identities to investigate the concurrent trading behaviors of high-frequency machine-traders (“HFTs”), humans trading electronically, and physical floor-traders in “extreme” periods characterized by large and persistently abnormal information or customer order-flow shocks. Compared to co-existing human electronic and floor traders, HFTs reduce trade participation, cut liquidity provision, and increase effective spreads during information-driven extreme periods, but do not behave differently during extreme periods driven by uninformative customer order-flow. These differences are driven by automation, not anonymity or physical floor-trading. Real-time human electronic and floor-traders usefully complement pre-programmed machine traders amid extreme conditions.

Keywords: HFT, Human traders, Anonymity, Liquidity, Information shocks, Order-flow shocks

JEL Classification: G10, G14, G18, Q40

Suggested Citation

Raman, Vikas and Robe, Michel A. and Yadav, Pradeep K., Liquidity Providers in “Extreme” Periods: High Frequency Machines vs. Human Electronic and Floor Traders (October 12, 2023). Proceedings of the EUROFIDAI-ESSEC Paris December Finance Meeting 2023, Available at SSRN: https://ssrn.com/abstract=2445223 or http://dx.doi.org/10.2139/ssrn.2445223

Vikas Raman

Lancaster University - Department of Accounting and Finance ( email )

The Management School
Lancaster LA1 4YX
United Kingdom

Michel A. Robe (Contact Author)

University of Richmond - E. Claiborne Robins School of Business ( email )

Richmond, VA 23173
United States

Pradeep K. Yadav

University of Oklahoma Price College of Business ( email )

307 W.Brooks, Room 3270 Division of Finance
Norman, OK 73019
United States
4053255591 (Phone)
4053255491 (Fax)

HOME PAGE: http://www.ou.edu/price/finance/faculty/pradeep_yadav.html

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