Who Provides Liquidity, and When? /

We model competition for liquidity provision between high-frequency traders (HFTs) and slower execution algorithms designed to minimize transaction costs for buy-side institutions (B-Algos). Under continuous pricing, B-Algos dominate liquidity provision by using aggressive limit orders to stimulate...

Ausführliche Beschreibung

1. Verfasser:

Li, Sida

Körperschaft:

National Bureau of Economic Research

Weitere Verfasser:

Wang, Xin, Ye, Mao

Format:

Elektronisch E-Book

Sprache:

Englisch

Veröffentlicht:

Cambridge, Mass. National Bureau of Economic Research 2019.

Zusammenfassung:

We model competition for liquidity provision between high-frequency traders (HFTs) and slower execution algorithms designed to minimize transaction costs for buy-side institutions (B-Algos). Under continuous pricing, B-Algos dominate liquidity provision by using aggressive limit orders to stimulate HFTs' market orders. Under discrete pricing, HFTs dominate liquidity provision if the bid-ask spread is binding at one tick. If the tick size is not binding, B-Algos choose between stimulating HFTs and providing liquidity to other non-HFTs. Flash crashes arise under certain parameter values. Transaction costs can be negatively correlated with the bid-ask spread when all traders can provide liquidity.

Umfang:

1 online resource: illustrations (black and white);

Anmerkungen:

June 2019.

Schlagworte:

General Financial Markets

Asset Pricing • Trading Volume • Bond Interest Rates