Who provides liquidity, and when?

• Main Authors: Li, Sida, Wang, Xin, Ye, Mao
• Other Authors: Nanyang Business School
• Format: Article
• Language: English
• Published: 2022
• Subjects: Business::Finance; High-Frequency Trading; Algorithmic Trading
• Online Access: https://hdl.handle.net/10356/159747
• Institution: Nanyang Technological University

We model competition for liquidity provision between high-frequency traders (HFTs) and slower execution algorithms (EAs) designed to minimize investors’ transaction costs. Under continuous pricing, EAs dominate liquidity provision by using aggressive limit orders to stimulate HFTs’ market orders. Un...