High-frequency trading in the Bund futures market

In this work, I study the impact of high-frequency trading (HFT) on price discovery and volatility in the Bund futures market. Using a new dataset based on microseconds, the focus of the study is on the reaction of high-frequency traders (HFTs) to major macroeconomic news events. I show that through their fast and strong reaction to news, HFTs contribute more to price discovery compared to Non-HFTs, but also add a higher share to noise than to permanent volatility. Moreover, I find evidence that HFTs tend to supply less liquidity after an unexpected rise in market volatility and prior to upcoming macroeconomic news events. These findings suggest that in times of high market stress, HFT behavior may exacerbate intraday price volatility and amplify the risk of market disruptions in fixed income markets.