2023/04/27 by Xu, Ziyi, Cheng, Xue
#FOS: Economics and business #General Economics (econ.GN) #Mathematical Finance (q-fin.MF) #Trading and Market Microstructure (q-fin.TR)
paper · doi:10.48550/arxiv.2304.13985
In an extended Kyle's model, the interactions between a large informed trader and a high-frequency trader (HFT) who can anticipate the former's incoming order are studied. We find that, in equilibrium, HFT may play the role of Small-IT or Round-Tripper: both of them trade in the same direction as IT in advance, but when IT's order arrives, Small-IT continues to take liquidity away, while Round-Tripper supplies liquidity back. So Small-IT always harms IT, while Round-Tripper may benefit her. What's more, with an anticipatory HFT, normal-speed small uninformed traders suffer less and price discovery is accelerated.