Liquidity effects of trading frequency
dc.contributor.author | Gayduk, Roman | |
dc.contributor.author | Nadtochiy, Sergey | |
dc.date.accessioned | 2018-07-13T15:48:22Z | |
dc.date.available | 2019-09-04T20:15:39Z | en |
dc.date.issued | 2018-07 | |
dc.identifier.citation | Gayduk, Roman; Nadtochiy, Sergey (2018). "Liquidity effects of trading frequency." Mathematical Finance 28(3): 839-876. | |
dc.identifier.issn | 0960-1627 | |
dc.identifier.issn | 1467-9965 | |
dc.identifier.uri | https://hdl.handle.net/2027.42/144690 | |
dc.description.abstract | In 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.publisher | Wiley Periodicals, Inc. | |
dc.publisher | Springer‐Verlag | |
dc.subject.other | continuum‐player games | |
dc.subject.other | conditional tails of Itô processes | |
dc.subject.other | Limit Order Book | |
dc.subject.other | liquidity | |
dc.subject.other | trading frequency | |
dc.title | Liquidity effects of trading frequency | |
dc.type | Article | en_US |
dc.rights.robots | IndexNoFollow | |
dc.subject.hlbsecondlevel | Mathematics | |
dc.subject.hlbsecondlevel | Finance | |
dc.subject.hlbtoplevel | Science | |
dc.subject.hlbtoplevel | Business and Economics | |
dc.description.peerreviewed | Peer Reviewed | |
dc.description.bitstreamurl | https://deepblue.lib.umich.edu/bitstream/2027.42/144690/1/mafi12157_am.pdf | |
dc.description.bitstreamurl | https://deepblue.lib.umich.edu/bitstream/2027.42/144690/2/mafi12157.pdf | |
dc.identifier.doi | 10.1111/mafi.12157 | |
dc.identifier.source | Mathematical Finance | |
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dc.owningcollname | Interdisciplinary and Peer-Reviewed |
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