Strategic Liquidity Provision in High Frequency Trading
20 Pages Posted: 19 Oct 2019
Date Written: October 9, 2019
We construct a Kyle (1985) - type market model in which fast and slow traders are present. We will show with numerical calculations that a fast trader who has an advantage in trade frequency plays a role as a liquidity provider in the sense that he takes the opposite position against a slow trader if the difference in frequency is significant. Our theoretical results seem generally consistent with empirical results reported by previous studies.
Keywords: High Frequency Trading, Market Micro-Structure, Strategic Liquidity Provision
JEL Classification: D43, D82, G12
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