High Frequency Trading in the Equity Markets During US Treasury POMO

  • Cheng Gao
  • Bruce Mizrach
Part of the Dynamic Modeling and Econometrics in Economics and Finance book series (DMEF, volume 24)


We analyze high frequency trading (HFT) activity in equities during US Treasury permanent open market (POMO) purchases by the Federal Reserve. We construct a model to study HFT quote and trade behavior when private information is released and confirm it empirically. We estimate that HFT firms reduce their inside quote participation by up to 8% during POMO auctions. HFT firms trade more aggressively, and they supply less passive liquidity to non-HFT firms. Market impact also rises during Treasury POMO. Aggressive HFT trading becomes more consistently profitable, and HFT firms earn a higher return per share. We also estimate that HFT firms earn profits of over $105 million during US Treasury POMO events.

JEL Classification

G12 G21 G24 



We would like to thank Nasdaq OMX for providing the high frequency dataset, an anonymous referee, Michael Fleming and seminar participants at National Chiao Tung, Nankai, the Modeling High Frequency Data in Finance Conference, and the Second International Symposium in Computational Economics and Finance.


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Copyright information

© Springer Nature Switzerland AG 2018

Authors and Affiliations

  • Cheng Gao
    • 1
  • Bruce Mizrach
    • 1
  1. 1.Department of EconomicsRutgers UniversityNew BrunswickUSA

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