Strategic Liquidity Provision in High Frequency Trading

26 Pages Posted: 19 Oct 2019 Last revised: 8 Dec 2022

See all articles by Takaki Hayashi

Takaki Hayashi

Keio University

Katsumasa Nishide

Graduate School of Economics, Hitotsubashi University

Multiple version iconThere are 2 versions of this paper

Date Written: December 8, 2022

Abstract

We construct a Kyle (1985)-type market model in which fast and slow traders are present. After deriving the equilibrium condition described as a simultaneous equation system, we will perform numerical calculations. A major finding is that the fast trader who has an advantage in trade frequency acts as a liquidity provider, in that he takes the opposite position against the slow trader, if the difference in frequency is significant. Our theoretical results seem generally consistent with the empirical results of previous studies.

Keywords: High Frequency Trading, Market Micro-Structure, Strategic Liquidity Provision

JEL Classification: D43, D82, G12

Suggested Citation

Hayashi, Takaki and Nishide, Katsumasa, Strategic Liquidity Provision in High Frequency Trading (December 8, 2022). Available at SSRN: https://ssrn.com/abstract=2853277 or http://dx.doi.org/10.2139/ssrn.2853277

Takaki Hayashi

Keio University ( email )

2-15-45 Mita
Minato-ku
Tokyo, 108-8345
Japan

Katsumasa Nishide (Contact Author)

Graduate School of Economics, Hitotsubashi University ( email )

2-1 Naka Kunitachi-shi
Tokyo 186-8601
Japan

HOME PAGE: http://www1.econ.hit-u.ac.jp/nishide/

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