Strategic Liquidity Provision in High Frequency Trading

20 Pages Posted: 19 Oct 2019

See all articles by Takaki Hayashi

Takaki Hayashi

Keio University

Katsumasa Nishide

Graduate School of Economics, Hitotsubashi University

Date Written: October 9, 2019

Abstract

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

Suggested Citation

Hayashi, Takaki and Nishide, Katsumasa, Strategic Liquidity Provision in High Frequency Trading (October 9, 2019). 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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