Abstract
This paper investigates high-frequency (HF) trading in the U.S. Treasury market around macroeconomic news announcements. After identifying HF market and limit orders based on the speed of their placement alteration and cancellation deemed beyond manual ability, we use the introduction of the co-location facility (i-Cross) by BrokerTec as an exogenous instrument to assess the impact of HF trading on market liquidity and price efficiency. We find that HF trading increases after news announcements and improves price efficiency. However, it has a negative impact on liquidity, as it widens spreads before announcements and lowers depth of the order book after announcements.
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