Navigating Financial Waters: Exploring the Intersection of Algorithmic Trading and Market Liquidity Dynamics
subject: Algorithmic trading; Amihuds measure; Limit Order Book; Liquidity; Non-algorithmic trading
description: Algorithmic trading has ushered paradigm shift in trading. The market regulators although welcome this new technological advancement but are still keeping a tight leash. This can be owing to the contradicting and inconclusive evidence of its implications and impact on market microstructure. This study focuses on liquidity which is an integral part of a thriving stock market. We aim to examine if there is a statistical significance between volume of algorithmic orders and market capitalization. The liquidity provision is measured using Amihuds Illiquidity measure which is a proxy for measuring illiquidity. The liquidity measure is examined for chosen 8 stocks based on their market capitalization. The volume of algorithmic orders is examined using the Limit Order Book (LOB) data obtained from the BSE and orders for 23 trading days have been considered. We observe that large capitalization stocks display higher liquidity and algorithmic traders are able to contribute significantly to liquidity when compared to non-algorithmic traders. It was also looked at if there was a big difference in the amount of algorithmic trading done on stocks with big and small capitalization. The Author(s), under exclusive license to Springer Nature Switzerland AG 2025.
creator: Acharya, Shubhashree; Salunkhe, Harshal Anil; Mathiyarasan, M.
source: Studies in Systems, Decision and Control;Volume;555;pp.533-544
publisher: Springer Science and Business Media Deutschland GmbH
date: 01-01-2025
rights: Restricted Access; Hardcopy may be available in the library
relation: ISSN: 21984182;
language: English
type: Book chapter
coverage: Acharya S., School of Business and Management, Christ University, Banglaore, India; Salunkhe H.A., School of Business and Management, Christ University, Banglaore, India; Mathiyarasan M., Faculty of Commerce and Management, Kristu Jayanti College, Bengaluru, India