Slow-moving capital and execution costs: Evidence from a major trading glitch |
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| Authors: | Vincent Bogousslavsky Pierre Collin-Dufresne Mehmet Sağlam |
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| Affiliation: | 1. Carroll School of Management, Boston College, 140 Commonwealth Avenue, Chestnut Hill, MA 02467, USA;2. Swiss Finance Institute at EPFL, Quartier UNIL-Dorigny, Extranef 213, Lausanne CH-1015, Switzerland;3. Carl H. Lindner College of Business, 2906 Woodside Drive, University of Cincinnati, Cincinnati, OH 45221, USA;1. Harvard Business School, United States;2. Princeton University, United States;1. Erasmus Scchool of Economics - Burgemeester Oudlaan 50, Erasmus University Rotterdam, Rotterdam PA 3062, the Netherlands;2. Tilburg University - Warandelaan 2, Tilburg AB 5037, the Netherlands;1. Oslo Metropolitan University, Oslo Business School, Pilestredet 46, Oslo 0130, Norway;2. The Arctic University of Norway, Hansine Hansens veg 18, Tromsø N-9019, Norway;3. Department of Banking and Finance, Monash University, 900 Dandenong Rd., Caulfield East VIC 3145, Australia |
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| Abstract: | We investigate the impact of an exogenous trading glitch at a high-frequency market-making firm on standard measures of stock liquidity (spreads, price impact, turnover, and depth) and institutional trading costs (implementation shortfall and volume-weighted average price slippage). Stocks in which the firm accumulates large long (short) positions increase (decrease) by about 4% during the glitch and become substantially more illiquid. It takes one day for prices and spread-based liquidity measures to revert. Institutional trading costs, however, remain significantly higher for more than one week. Both liquidity measures are also weakly correlated outside the glitch period, suggesting they capture different aspects of liquidity. |
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