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Fast traders and slow price adjustments: an artificial market with strategic interaction and transaction costs

UNIVERSITY OF TECHNOLOGY SYDNEY
Finance Discipline Group 
Research Seminars in Finance
 
Topic: Fast traders and slow price adjustments: an artificial market with strategic interaction and transaction costs
 
SpeakerMarco Tolotti, Università Ca' Foscari Venezia
 
Abstract: In this paper we propose an artificial market to model high frequency trading where (fast) agents strategically use thresholds rules to issue orders based on a signal on the level of stochastic liquidity prevailing on the market. A (slow) market maker is in charge to daily set the closing price and adjust transaction costs to control for the volatility of returns and market activity.
 
We first show that a baseline version of the model with no frictions is able to generate returns endowed with several stylized facts, thus suggesting that the two time-scales used in the model are one (and possibly novel) way to obtain realistic market outcomes and that high-frequency trading can amplify liquidity shocks. We then explore whether transaction costs can be used to control excess volatility and improve market quality. While properly imple- mented taxation schemes may help in reducing the volatility, care is needed to avoid to  excessively reduce activity in the market and intensify the occurence of abnormal peaks in returns.
 
 
A light lunch will be provided at 1p.m. Please RSVP for catering purposes to Mala Kapahi by 12 noon on Monday, 24th July.
 
Date: Wednesday, 26th July 2017      
Time: 12.00 – 1.00 p.m.
Venue: University of Technology, Sydney
           Building 8, Room 4.002 
           Dr Chau Chak Wing Building
           14 - 28 Ultimo Road, Ultimo
 
Co-ordinator: Adrian Lee (Ph: +61 2 9514 7765)
 
Enquiries: Mala Kapahi (Ph: +61 2 9514 7777)

When

26 July 2017
12:00 pm - 1:00 pm

Where

City - HaymarketCB08 Dr Chau Chak Wing Building, Building 8