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Who Provides Liquidity, and When? / Sida Li, Xin Wang, Mao Ye.
- Format:
- Book
- Author/Creator:
- Li, Sida.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w25972.
- NBER working paper series no. w25972
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2019.
- Summary:
- We model competition for liquidity provision between high-frequency traders (HFTs) and slower execution algorithms designed to minimize transaction costs for buy-side institutions (B-Algos). Under continuous pricing, B-Algos dominate liquidity provision by using aggressive limit orders to stimulate HFTs' market orders. Under discrete pricing, HFTs dominate liquidity provision if the bid-ask spread is binding at one tick. If the tick size is not binding, B-Algos choose between stimulating HFTs and providing liquidity to other non-HFTs. Flash crashes arise under certain parameter values. Transaction costs can be negatively correlated with the bid-ask spread when all traders can provide liquidity.
- Notes:
- Print version record
- June 2019.
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