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Liquidity effects of trading frequency
dc.contributor.authorGayduk, Roman
dc.contributor.authorNadtochiy, Sergey
dc.date.accessioned2018-07-13T15:48:22Z
dc.date.available2019-09-04T20:15:39Zen
dc.date.issued2018-07
dc.identifier.citationGayduk, Roman; Nadtochiy, Sergey (2018). "Liquidity effects of trading frequency." Mathematical Finance 28(3): 839-876.
dc.identifier.issn0960-1627
dc.identifier.issn1467-9965
dc.identifier.urihttps://hdl.handle.net/2027.42/144690
dc.description.abstractIn this paper, we present a discrete‐time modeling framework, in which the shape and dynamics of a Limit Order Book (LOB) arise endogenously from an equilibrium between multiple market participants (agents). We use the proposed modeling framework to analyze the effects of trading frequency on market liquidity in a very general setting. In particular, we demonstrate the dual effect of high trading frequency. On the one hand, the higher frequency increases market efficiency, if the agents choose to provide liquidity in equilibrium. On the other hand, it also makes markets more fragile, in the sense that the agents choose to provide liquidity in equilibrium only if they are market neutral (i.e., their beliefs satisfy certain martingale property). Even a very small deviation from market neutrality may cause the agents to stop providing liquidity, if the trading frequency is sufficiently high, which represents an endogenous liquidity crisis (also known as flash crash) in the market. This framework enables us to provide more insight into how such a liquidity crisis unfolds, connecting it to the so‐called adverse selection effect.
dc.publisherWiley Periodicals, Inc.
dc.publisherSpringer‐Verlag
dc.subject.othercontinuum‐player games
dc.subject.otherconditional tails of Itô processes
dc.subject.otherLimit Order Book
dc.subject.otherliquidity
dc.subject.othertrading frequency
dc.titleLiquidity effects of trading frequency
dc.typeArticleen_US
dc.rights.robotsIndexNoFollow
dc.subject.hlbsecondlevelMathematics
dc.subject.hlbsecondlevelFinance
dc.subject.hlbtoplevelScience
dc.subject.hlbtoplevelBusiness and Economics
dc.description.peerreviewedPeer Reviewed
dc.description.bitstreamurlhttps://deepblue.lib.umich.edu/bitstream/2027.42/144690/1/mafi12157_am.pdf
dc.description.bitstreamurlhttps://deepblue.lib.umich.edu/bitstream/2027.42/144690/2/mafi12157.pdf
dc.identifier.doi10.1111/mafi.12157
dc.identifier.sourceMathematical Finance
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dc.owningcollnameInterdisciplinary and Peer-Reviewed


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