Limit order placement by high-frequency traders
Additional Document Info
The effectiveness of liquidity provision by HFT firms is an unexplored but central policy issue. Using unique data consisting of limit order
placement, execution, and cancellations, we find that HFT firms do not cancel orders more frequently than non-HFT firms. HFT firms more
effectively use order cancellation to strategically manage their limit orders in anticipation of short-term price movements than non-HFT firms.
HFT firms increase their liquidity provision during high volatility periods; their liquidity provision is less affected by order imbalance shocks
than that of non-HFT firms. Overall, our results indicate that HFT limit orders exert a stabilizing influence.