The Effects of High Frequency Trading in a Multi-Asset Model

Gerig, Austin and Michayluk, David (2011) The Effects of High Frequency Trading in a Multi-Asset Model. In: Cabdyn Complexity Centre Seminar Series, October 2011, University of Oxford, UK. (Unpublished)

Full text not available from this repository.

Abstract

High frequency traders have largely replaced human liquidity providers in US equity markets. This has increased market efficiency, reduced transaction costs, and increased
volumes. We develop a model that can explain how and why this has occurred:
-Similar to the Glosten and Milgrom (1985) model, but with multiple securities.
-We add an automated market maker who trades across securities and understands the relationships between their end-of-period values.
-This new participant:
1. Transacts the majority of orders.
2. Makes prices more efficient.
3. Increases informed and decreases uninformed traders transaction costs.
-As a result:
1. Volumes increase.
2. Overall transaction costs are reduce

Item Type: Conference or Workshop Item (Paper)
Keywords: Liquidity; Market efficiency; Trading; Models
Subject(s): Complexity
Centre: CABDyN Complexity Centre
Date Deposited: 05 Mar 2012 20:00
Last Modified: 23 Oct 2015 14:07
URI: http://eureka.sbs.ox.ac.uk/id/eprint/2742

Actions (login required)

Edit View Edit View