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| Content Provider | Springer Nature Link |
|---|---|
| Author | Jacob Leal, Sandrine Napoleta, Mauro Roventini, Andrea Fagiolo, Giorgio |
| Copyright Year | 2015 |
| Abstract | We build an agent-based model to study how the interplay between low- and high-frequency trading affects asset price dynamics. Our main goal is to investigate whether high-frequency trading exacerbates market volatility and generates flash crashes. In the model, low-frequency agents adopt trading rules based on chronological time and can switch between fundamentalist and chartist strategies. By contrast, high-frequency traders activation is event-driven and depends on price fluctuations. High-frequency traders use directional strategies to exploit market information produced by low-frequency traders. Monte-Carlo simulations reveal that the model replicates the main stylized facts of financial markets. Furthermore, we find that the presence of high-frequency traders increases market volatility and plays a fundamental role in the generation of flash crashes. The emergence of flash crashes is explained by two salient characteristics of high-frequency traders, i.e., their ability to i. generate high bid-ask spreads and ii. synchronize on the sell side of the limit order book. Finally, we find that higher rates of order cancellation by high-frequency traders increase the incidence of flash crashes but reduce their duration. |
| Starting Page | 49 |
| Ending Page | 76 |
| Page Count | 28 |
| File Format | |
| ISSN | 09369937 |
| Journal | Journal of Evolutionary Economics |
| Volume Number | 26 |
| Issue Number | 1 |
| e-ISSN | 14321386 |
| Language | English |
| Publisher | Springer Berlin Heidelberg |
| Publisher Date | 2015-08-16 |
| Publisher Place | Berlin, Heidelberg |
| Access Restriction | One Nation One Subscription (ONOS) |
| Subject Keyword | Agent-based models Limit order book High-frequency trading Low-frequency trading Flash crashes Market volatility Institutional/Evolutionary Economics Economic Theory/Quantitative Economics/Mathematical Methods Microeconomics Economic Growth R & D/Technology Policy Entrepreneurship |
| Content Type | Text |
| Resource Type | Article |
| Subject | Economics and Econometrics Business, Management and Accounting |
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