HFT @ Mizzou
at the University of Missouri, I'm investigating the HFT paradox — the empirically documented phenomenon where high-frequency trading simultaneously improves liquidity under normal market conditions and removes it catastrophically during stress events.
the paradox
HFT firms operate by posting tight bid-ask spreads and absorbing order flow at high speed. in normal markets, this measurably improves price discovery and lowers transaction costs. but HFT strategies are systematically risk-averse: when volatility spikes, they pull their quotes simultaneously and at scale, removing the very liquidity that market participants had come to rely on. the 2010 Flash Crash is the canonical demonstration.
the research
statistical analysis of order book dynamics across different volatility regimes — measuring how HFT participation rates, quote-to-trade ratios, and effective spreads evolve during stress events. case studies include the 2010 Flash Crash, the 2020 COVID-19 volatility shock, and several crypto market dislocations. the goal is to characterize HFT behavior precisely enough to model its contribution to systemic fragility.
why it matters
understanding HFT behavior under stress directly informs market structure regulation: whether circuit breakers are calibrated correctly, whether maker-rebate programs should be restructured to retain liquidity providers during volatility, and what disclosure requirements might reduce fragility without eliminating the efficiency gains HFT provides in calm markets.