Year: 2013
Type: report
Abstract: We propose a model of dynamic trading where a strategic high frequency trader receives an imperfect signal about future order flows, and exploits his speed advantage to optimize his quoting policy.We determine the provision of liquidity, order cancellations, and impact on low frequency traders as a function of both the high frequency trader's latency, and the market volatility.The model predicts that volatility leads high frequency traders to reduce their provision of liquidity.Finally, we analyze the impact of various policies designed to potentially regulate high frequency trading.
DOI: 10.3386/w19531
Authors: Yacine Aït-Sahalia, Mehmet Saglam
Institutions: National Bureau of Economic Research, Princeton University
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2581832022