Document Type


Degree Name

Doctor of Philosophy (PhD)



Program Name/Specialization

Financial Economics


School of Business and Economics

First Advisor

Andriy Shkilko

Advisor Role

Dissertation supervision


Recent technological advancements have challenged financial markets. Academic researchers, regulators and market participants voice concerns that modern markets bear the negative externalities of such advancements. Specifically, they are concerned that today’s markets are becoming more fragile and unfair to less sophisticated traders. This work employs empirical methodology to test whether these concerns are justified. This thesis contains three essays:

The first essay studies whether modern markets become less liquid during intraday extreme price movements (EPMs). When a price moves in a certain direction, liquidity providers face two opposing incentives. The first incentive is to stay in the market to accumulate more inventory in anticipation of a price reversal. The second incentive is to withdraw due to capital constraints, inventory and adverse selection risks. Using data from Canadian and U.S. markets, I find that the former incentive is stronger during intraday EPMs. This finding alleviates concerns that prices are subject to periods of extreme volatility due to systematic liquidity withdrawals. Contrary to these concerns, liquidity providers appear sufficiently incentivized to dampen intraday volatility.

The second essay examines the activity of a specific type of modern liquidity providers – high frequency traders (HFTs) – around EPMs. I find that, on average, HFTs provide liquidity during EPMs by absorbing imbalances created by non-high frequency traders (nHFTs). Yet HFT liquidity provision is limited to EPMs in single stocks. When several stocks experience simultaneous EPMs, HFT liquidity demand dominates their supply. There is little evidence of HFTs causing EPMs.

The third essay studies whether recent technological advancements result in higher costs for less sophisticated traders. In modern markets, trading firms spend generously to gain a speed advantage over their rivals. The marketplace that results from this rivalry is characterized by speed differentials whereby some traders are faster than others. Is such a marketplace optimal? To answer this question, I study a series of exogenous weather-related episodes that temporarily remove the speed advantages of the fastest traders by disrupting their microwave networks. During these episodes, adverse selection declines accompanied by improved liquidity and reduced volatility. Liquidity improvement is larger than the decline in adverse selection consistent with the emergence of latent liquidity and enhanced competition among liquidity suppliers. The results are confirmed in an event-study setting, whereby a new business model adopted by one of the technology providers reduces speed differentials among traders, which results in liquidity improvements.

Convocation Year


Convocation Season


Available for download on Thursday, April 23, 2020