TY  - RPRT
CY  - Toulouse
ID  - publications24141
UR  - http://tse-fr.eu/pub/31768
A1  - Biais, Bruno
A1  - Declerck, Fany
A1  - Moinas, Sophie
Y1  - 2017/06//
N2  - Who provides liquidity in modern, electronic limit order book, markets? While agency trading can be constrained by conflicts of interest and information asymmetry between customers and traders, prop traders are likely to be less constrained and thus better positioned to carry inventory risk. Moreover, while slow traders'limit orders may be exposed to severe adverse selection, fast trading technology can improve traders'ability to monitor the market and avoid being picked off. To shed light on these points, we rely on unique data from Euronext and the AMF enabling us to observe the connectivity of traders to the market, and whether they are proprietary traders. We find that proprietary traders, be they fast or slow, provide liquidity with contrarian marketable orders, thus helping the market absorb shocks, even during crisis, and earn profits doing so. Moreover, fast traders provide liquidity by leaving limit orders in the book. Yet, only prop traders can do so without making losses. This suggests that technology is not enough to overcome adverse selection, monitoring incentives are also needed.
PB  - TSE Working Paper
T3  - TSE Working Paper
KW  - Liquidity
KW  - high-frequency trading
KW  - proprietary trading
KW  - adverse selection
KW  - electronic limit order book
KW  - short-term momentum
KW  - contrarian
M1  - working_paper
TI  - Who supplies liquidity, how and when?
AV  - public
EP  - 38
ER  -