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Impact of Electronic Liquidity Providers Within a High-Frequency Agent-Based Modeling Framework

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  • Alexandru Mandes

    (University of Giessen)

Abstract

The current contribution addresses the impact of high-frequency electronic liquidity provision strategies on the intraday dynamics of financial markets, by means of an artificial stock market. As novel design feature, an event-based intraday time implementation is proposed, allowing for the generation of time-stamped intraday events, which make possible both the aggregation of time series at various time frequencies, as well as the correct simulation of trading strategies that follow different temporal frequencies, e.g., low- and high-frequency. We provide new insights with respect to the determinants of extreme events, such as flash crashes. Finally, we compare the causal chains and the effectiveness of two potential regulatory policies under the same market circumstances, i.e., minimum resting time and financial-transaction taxes, not only with respect to their flash crash prevention power, but also regarding their impact on market participants and market quality, shedding new light on the policy trade-offs.

Suggested Citation

  • Alexandru Mandes, 2020. "Impact of Electronic Liquidity Providers Within a High-Frequency Agent-Based Modeling Framework," Computational Economics, Springer;Society for Computational Economics, vol. 55(2), pages 407-450, February.
    • Handle: RePEc:kap:compec:v:55:y:2020:i:2:d:10.1007_s10614-019-09891-1
    DOI: 10.1007/s10614-019-09891-1
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    References listed on IDEAS

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    More about this item

    Keywords

    Agent-based modeling; High-frequency trading; Electronic liquidity provision; Market quality; Flash crash; Regulatory policy;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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