Economics, Econometrics and Finance
5 years ago

High-frequency trading strategies impact market liquidity: more traders, less liquidity.

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Research in International Business and Finance
The optimal bid-ask price strategies of high-frequency trading and the effect on market liquidity
Haijun Yang, Hengshun Ge, Ying Luo

Paper Summary

High-frequency traders use a model to decide on the best prices to buy and sell stocks, considering factors like volatility and trading volume. They aim to keep the bid-ask spread stable. More regular traders and delays in trading hurt the market. High-frequency traders make more money by offering both buying and selling prices, but switch to only selling during volatile times. This model's findings are supported by real data from the NASDAQ-OMX Nordic Market.

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