Impact of inventory-based electronic liquidity providers within a high-frequency event- and agent-based modeling framework

Alexandru Mandes ()
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Alexandru Mandes: University of Giessen

MAGKS Papers on Economics from Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung)

Abstract: This contribution addresses the impact of high-frequency electronic liquidity provision strategies on financial markets' intraday dynamics, by evaluating the interaction between multiple trading strategies within a computer laboratory, i.e. an artificial stock market. Initially, a realistic base-line model is set up around a continuous double auction market, with trading being pursued only by four types of low-frequency market participants. Sequentially, the high-frequency agents are added to the model and the corresponding changes related to various measures of market quality and market systemic risk are analyzed, under both regular and market stress conditions, such as when the order ow balance is suddenly disrupted by a large volume-in-line sell program. A detailed intraday analysis of a ash crash emergence is also conducted. Finally, possible regulatory policies such as minimum holding or quote resting time and financial-transaction taxes are assessed.

Keywords: agent-based modeling; continuous double auction; high-frequency trading; electronic liquidity provision; market quality; systemic risk; ash crash; regulatory policies (search for similar items in EconPapers)
JEL-codes: C63 G17 G28 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2015
New Economics Papers: this item is included in nep-cmp and nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:mar:magkse:201515

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