RoZetta Institute Industrial PhD Scholarship holder – Shaun Lim Kin Soon – with Professor Andrew Lepone and Professor Petko Kalev analysed high-frequency trading activity leading up to, during and post the crash period driven by COVID-19 recently featured in the Australian Finance Review.


Shaun Lim Kin Soon is a RoZetta PhD Scholarship Holder enrolled at La Trobe University Melbourne.

This report analyses the level of high-frequency trading around the market crash period driven by the COVID-19 outbreak and its impact on the market quality in the Australian Securities Exchange. We classify the period of the crash into pre-, during and post-crash, and find that:

  • Despite trading volume being 186 per cent higher during the period of the market crash, high-frequency trading (proxied by the order-to-trade ratio) is 17 per cent lower when compared to the pre-crash period. This ratio continues to fall in the post-crash period and is 38 per cent less than during the pre-crash period.
  • Market quality metrics such as quoted and effective spreads are significantly wider during and after the market crash. When compared to the pre-crash period, quoted and effective spreads are on average 15 and 4 basis points wider during the market crash. Both measures of spreads widen by 18 and 11 basis points after the crash.
  • Similarly, quoted depths are AUD 389,000 lower when the market crashes, and further deteriorate in the post-crash period, being AUD 548,000 less than the pre-crash period.
  • Realised volatility is approximately 0.2 per cent higher during and after the market crash period.

Our findings show that the level of high-frequency trading is lower during the period of the market crash, and further declines after the crash. Market liquidity is worsened during the market crash, indicating that trading is more expensive. This situation does not improve in the post-crash period. Overall, our results provide evidence that when high-frequency traders are less active due to a high level of market uncertainty, market quality tends to deteriorate, resulting in higher trading costs for investors.

Professor Andrew Lepone is the Chief Research Officer at RoZetta Institute and a Professor of Finance and Accounting at Macquarie University Sydney

Professor Petko Kalev is a Professor of Finance at La Trobe University Business School

Download the HFT research report

RoZetta Institute Research Report | When High-Frequency Traders Stay Isolated For COVID-19