Strategic liquidity provision in high-frequency trading

Takaki Hayashi and Katsumasa Nishide

International Review of Financial Analysis, 2024, vol. 93, issue C

Abstract: We construct a Kyle (1985)-type market model in which fast and slow traders are present. We perform numerical calculations after deriving the equilibrium condition, described as a simultaneous equation system. A major finding is that the fast trader, who has an advantage in trade frequency, acts as a liquidity provider, taking the opposite position against the slow trader if the difference in frequency is significant. Our theoretical results appear to be consistent with the empirical results of previous studies.

Keywords: High-frequency trading; Market microstructure; Strategic liquidity provision (search for similar items in EconPapers)
JEL-codes: D43 D82 G12 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:93:y:2024:i:c:s1057521924001005

DOI: 10.1016/j.irfa.2024.103168

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