JIE 2022.pdf (2.41 MB)
Judgment day: algorithmic trading around the Swiss Franc cap removal
journal contribution
posted on 2023-06-10, 05:53 authored by Francis Breedon, Louisa ChenLouisa Chen, Angelo Ranaldo, Nicholas VauseA 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.
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Publication status
- Published
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- Published version
Journal
Journal of International EconomicsISSN
0022-1996Publisher
ElsevierExternal DOI
Volume
140Page range
1-21Department affiliated with
- Accounting and Finance Publications
Research groups affiliated with
- Business and Finance Research Group Publications
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- Yes
Peer reviewed?
- Yes
Legacy Posted Date
2023-01-09First Open Access (FOA) Date
2023-01-09First Compliant Deposit (FCD) Date
2023-01-06Usage metrics
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