High trading frequency in markets may lead to endogenous liquidity crises.
The article explores how trading frequency affects market liquidity. High trading frequency can make markets more efficient but also more fragile, leading to potential liquidity crises. This study shows that even a small deviation from market neutrality can cause agents to stop providing liquidity, especially in fast-paced trading environments. This research sheds light on how liquidity crises, like flash crashes, can occur due to the adverse selection effect.