The Covid-19 pandemic saw an unprecedented crash in the stock markets. This crash was accompanied by liquidity reduction. The study finds that the liquidity decrease was a result of the de facto liquidity providers’ (the proprietary algorithmic traders) reduction in liquidity supply. Proprietary algorithmic traders showed a greater propensity to trade via market orders, reduced the fraction of contrarian trades, and reduced their share of order book depth compared to other traders during the pandemic. The results weigh on the concern of the regulators on whether algorithmic liquidity providers can continue to work as de-facto market-makers.
CO Author: Anirban Banerjee
Journal: Finance Research Letters
Click here
