Algos gone wild: What drives the extreme order cancellation rates in modern markets?
Files
(Accepted version)
Date
2021
Authors
Khomyn, M.
Putniņš, T.J.
Editors
Advisors
Journal Title
Journal ISSN
Volume Title
Type:
Journal article
Citation
Journal of Banking and Finance, 2021; 129:106170-1-106170-16
Statement of Responsibility
Marta Khomyn, Tãlis J. Putniņš
Conference Name
Abstract
97% of orders in US stock markets are cancelled before they trade, straining market infrastructure and raising concerns about predatory or manipulative trading. To understand the drivers of these extreme cancellation rates, we develop a simple model of liquidity provision and find that growth in order-to-trade ratios (OTTRs) is driven by fragmentation of trading and technological improvements that lower monitoring costs. High OTTRs occur legitimately in stocks with high volatility, fragmented trading, small tick sizes, and low volume. OTTRs are usually within levels consistent with market making, but occasionally spike to levels that may indicate illegitimate trading such as spoofing.
School/Discipline
Dissertation Note
Provenance
Description
Access Status
Rights
© 2021 Elsevier B.V. All rights reserved.