Which Traders Strategically Offer Liquidity During Price Jumps?

Using complete intraday orders data, this paper compares strategic liquidity provision of institutions and individuals during price jumps. Consistent with risk-return trade-off models, we find evidence that liquidity provision is increasing with jump size (i.e., strategic liquidity provision) for all groups of traders, especially individuals followed by domestic institutions. The positive relation between jump size and liquidity provision by institutions (individuals) decreases (increases) during permanent jumps, suggesting that institutions (individuals) are more (less) informed. Institutions are the most sensitive to inventory risk as they reduce their strategic liquidity provision the most during periods of many price jumps. Finally, the introduction of low-latency trading encourages institutions (especially foreign institutions), but not individuals, to increase strategic liquidity provision during price jumps