Browsing by Subject "Order flow"

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    Message traffic and short-term illiquidity in high-speed markets
    (Elsevier, 2024-12-31) Abad, David; Massot, Magdalena; Nawn, Samarpan; Pascual, Roberto; Yagüe, José; Organización de Empresas y Finanzas
    We examine which components of message traffic in a high-speed equity market, including orders from traders with varying technological capabilities, signal short-term illiquidity. Our findings show that only the unexpected component of high-frequency traders' (HFTs') net buying pressure — arising from both aggressive and non-aggressive orders — predicts increases in immediacy costs and price impacts. Updates to outstanding limit orders, driven by prior efficient pre returns, strengthen the signaling power of HFTs' order flow. Additionally, market-wide HFTs' net buying pressure improves the ability to forecast short-term illiquidity in individual stocks.