Impact of Algorithmic Trading on Market Volatility

In recent years, algorithmic trading has become an integral part of equity market operations. A study conducted on the efficiency of algorithmic trading revealed that it improves market liquidity but may lead to unintended consequences such as increased volatility and market manipulation. The research analyzed various algorithmic strategies and their impact on order execution and market depth.

Three trading strategies were evaluated: 1) Liquidity Provisioning, which involves placing orders to become a market maker; 2) Momentum Ignition, where traders try to initiate a price trend to capitalize on the ensuing momentum; and 3) Statistical Arbitrage, which uses complex algorithms to exploit price inefficiencies among correlated stocks.

Considering the implications of these strategies, which algorithmic trading strategy is most likely to worsen market volatility in a high-frequency trading environment?