PT - JOURNAL ARTICLE AU - Deniz Ozenbas AU - Robert A. Schwartz TI - Do High Frequency Trading Firms Provide Two-Sided Liquidity? AID - 10.3905/jpm.2018.1.081 DP - 2018 Jul 13 TA - The Journal of Portfolio Management PG - jpm.2018.1.081 4099 - https://pm-research.com/content/early/2018/07/13/jpm.2018.1.081.short 4100 - https://pm-research.com/content/early/2018/07/13/jpm.2018.1.081.full AB - High-frequency trading (HFT) firms are commonly thought of as the new market makers, although, unlike traditional dealers, they have no affirmative obligation. The authors investigate the quality of HFT-provided liquidity by focusing on whether HFT firms make, with reasonable consistency, two-sided markets. They find that HFT and non-HFT firms contribute approximately equally to liquidity creation, HFT is mostly two-sided, and non-HFT is more one-sided. For the authors’ sample, the two-sided liquidity provision of HFT firms was directed mainly at volatile, large-cap stocks, and it declined sharply during extreme events (i.e., mini flash crashes). Thus, HFT firms appear to be quite selective as market makers.