Does Algorithmic Trading Improve Liquidity?

  title={Does Algorithmic Trading Improve Liquidity?},
  author={Terrence Hendershott and Charles M. Jones and Albert J. Menkveld},
  journal={Capital Markets: Market Microstructure},
Algorithmic trading has sharply increased over the past decade. Equity market liquidity has improved as well. Are the two trends related? For a recent five-year panel of New York Stock Exchange (NYSE) stocks, we use a normalized measure of electronic message traffic (order submissions, cancellations, and executions) as a proxy for algorithmic trading, and we trace the associations between liquidity and message traffic. Based on within-stock variation, we find that algorithmic trading and… 

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