High Frequency Traders: Taking Advantage of Speed / Yacine Aït-Sahalia, Mehmet Saglam.

Format:

Book

Author/Creator:

Aït-Sahalia, Yacine.

Contributor:

National Bureau of Economic Research.

Saglam, Mehmet.

Series:

Working Paper Series (National Bureau of Economic Research) no. w19531.

NBER working paper series no. w19531

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

High Frequency Traders

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2013.

Summary:

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.

Notes:

Print version record

October 2013.