Judgement day: algorithmic trading around the Swiss Franc cap removal

Breedon, Francis, Chen, Louisa, Ranaldo, Angelo and Vause, Nicholas (2018) Judgement day: algorithmic trading around the Swiss Franc cap removal. Working Paper. Bank of England, London.

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Staff working paper no. 711:

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.

Item Type: Reports and working papers (Working Paper)
Keywords: Swiss franc, algorithmic trading, liquidity, volatility, price discovery, arbitrage opportunities
Schools and Departments: University of Sussex Business School > Accounting and Finance
Subjects: H Social Sciences > HG Finance > HG3810 Foreign exchange. International finance. International monetary system
Depositing User: Joy Blake
Date Deposited: 25 Apr 2018 15:21
Last Modified: 29 Oct 2019 16:27
URI: http://sro.sussex.ac.uk/id/eprint/75411
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