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- handle: 10670/1.ymm4dx
- hal: hal-03411703
- doi: 10.1007/s00191-015-0418-4
- SCIENCESPO: 2441/3nk4dobs4h99er026i4ob74bb7
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info:eu-repo/semantics/altIdentifier/doi/10.1007/s00191-015-0418-4
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info:eu-repo/semantics/altIdentifier/hdl/2441/3nk4dobs4h99er026i4ob74bb7
Mots-clés
Agent-based models Limit order book High-frequency trading Low-frequency trading C - Mathematical and Quantitative Methods/C.C6 - Mathematical Methods • Programming Models • Mathematical and Simulation Modeling/C.C6.C63 - Computational Techniques • Simulation Modeling G - Financial Economics/G.G1 - General Financial Markets G - Financial Economics/G.G1 - General Financial Markets/G.G1.G12 - Asset Pricing • Trading Volume • Bond Interest Rates G - Financial Economics/G.G1 - General Financial Markets/G.G1.G14 - Information and Market Efficiency • Event Studies • Insider TradingCiter ce document
Giorgio Fagiolo et al., « Rock around the Clock: An Agent-Based Model of Low- and High-Frequency Trading », Archive ouverte de Sciences Po (SPIRE), ID : 10.1007/s00191-015-0418-4
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Résumé
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.