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Goethe-Universität Frankfurt am Main
(cv & bio)
« High-Frequency Market Making: Liquidity Provision, Adverse Selection, and Competition”
Using data from the NYSE Euronext Paris, with a specific identifier for electronic market- making activity, I examine the role of designated liquidity providers played by high-frequency traders (HFTs) as defined by the forthcoming MiFID II regulation. I find that HFTs do provide liquidity to the market, but strategically so, to avoid being adversely selected by other fast traders when providing liquidity to them. Conversely, when they provide liquidity to slow traders, there is no evidence of adverse selection. I exploit a change in the liquidity provision agreement that introduces more competition among market makers to show that greater competition is beneficial for the market. Liquidity provision increases and the quoted bid-ask spread decreases. The adverse selection costs faced by all traders decreases, especially for slow traders.
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thursday 15 March 2018
12:00am to 13:30pm, Room 4210
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Deadline: 14 March 2018
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