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  4. Judgment Day: Algorithmic Trading around the Swiss Franc Cap Removal
 
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Judgment Day: Algorithmic Trading around the Swiss Franc Cap Removal

Journal
Journal of International Economics
ISSN
0304-405X
Type
journal article
Date Issued
2023-01
Author(s)
Breedon, Francis
Chen, Louisa
Ranaldo, Angelo  
Vause, Nicholas
DOI
10.1016/j.jinteco.2022.103713
Abstract (De)
A key issue for decentralised markets like FX is how the market responds to extreme situations. Using data on FX transactions with a precise identification of Algorithmic trading (AT), we find that AT, broadly defined, appears to have contributed to the deterioration of market quality following the removal of the cap on the Swiss franc on 15 January 2015 by withdrawing liquidity and generating uninformative volatility. We also find that the Swiss National Bank, after initially stepping aside, played an important role, though more by signalling rather than trading. This perhaps explains why human trading – that could most easily interpret those signals – was important in stabilising the market.
Language
English
Keywords
Algorithmic trading
Swiss franc
market liquidity
price efficiency
central bank intervention
HSG Classification
contribution to scientific community
HSG Profile Area
SOF - System-wide Risk in the Financial System
Refereed
Yes
Publisher
Elsevier
Volume
140
Pages
21
Official URL
https://www.sciencedirect.com/science/article/pii/S0022199622001453
URL
https://www.alexandria.unisg.ch/handle/20.500.14171/107841
Subject(s)

finance

Division(s)

SoF - School of Finan...

Eprints ID
268956

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