Judgement Day: Algorithmic Trading Around the Swiss Franc Cap Removal
Series
School of Finance Working Paper Series
Type
working paper
Date Issued
2018-02-16
Author(s)
Abstract
A key issue raised by the rapid growth of computerised algorithmic trading is how it responds in extreme situations. Using data on foreign exchange orders and transactions that includes identification of algorithmic trading, we find that this type of trading contributed to the deterioration of market quality following the removal of the cap on the Swiss franc on 15 January 2015, which was an event that came as a complete surprise to market participants. In particular, we find that algorithmic traders withdrew liquidity and generated uninformative volatility in Swiss franc currency pairs, while human traders did the opposite. However, we find no evidence that algorithmic trading propagated these adverse effects on market quality to other currency pairs.
Language
English
Keywords
Swiss franc
algorithmic trading
liquidity
volatility
price discovery
arbitrage opportunities
HSG Classification
contribution to scientific community
Publisher
SoF HSG
Volume
2018
Number
08
Subject(s)
Division(s)
Eprints ID
253760