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Communication Dans Un Congrès Année : 2014

Rock around the clock: An agent-based model of low- and high-frequency trading

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.
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Dates et versions

hal-01515227 , version 1 (27-04-2017)

Identifiants

  • HAL Id : hal-01515227 , version 1

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Sandrine Jacob Leal, Mauro Napoletano, Andrea Roventini, Giorgio Fagiolo. Rock around the clock: An agent-based model of low- and high-frequency trading. Colloque annuel du GDRE \Monnaie, Banque, Finance du CNRS, 2014, Lyon, France. ⟨hal-01515227⟩
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