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research article

Slow Moving Capital and Trade Execution Costs: Evidence from a major trading Glitch

Collin Dufresne, Pierre  
•
Bogousslavsky, Vincent  
•
Mehmet, Saglam
2021
Journal of Financial Economics

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 VWAP 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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Type
research article
DOI
10.1016/j.jfineco.2020.08.009
Author(s)
Collin Dufresne, Pierre  
•
Bogousslavsky, Vincent  
•
Mehmet, Saglam
Date Issued

2021

Published in
Journal of Financial Economics
Volume

139

Issue

3

Start page

922

End page

949

Subjects

Liquidity

•

Algorithmic Trading

•

Institutional Trading Costs

•

Slow-Moving Capital

•

Market Making

Peer reviewed

REVIEWED

Written at

EPFL

EPFL units
SFI-PCD  
Available on Infoscience
October 5, 2020
Use this identifier to reference this record
https://infoscience.epfl.ch/handle/20.500.14299/172234
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