讲座：The Microstructure of Endogenous Liquidity Provision
题 目：The Microstructure of Endogenous Liquidity Provision
嘉 宾：Xuezhong He, Professor in Department of Finance
University of Technology Sydney (UTS)
时 间：2019年11月20日（周三） 14:30-16:00
地 点：上海交通大学 徐汇校区包图 B1516
Liquidity can evaporate quickly during market turmoil. This paper proposes a nonlinear rational expectations equilibrium model of high-frequency endogenous liquidity provision to understand better such fragile liquidity. With fast trading speed and private information, high-frequency traders (HFTs) can either compete with designated market makers (DMMs) by providing liquidity, or attempt to profit from speculative trades that consume liquidity. Absent an obligation to provide liquidity, HFTs can switch between supplying and consuming liquidity, depending on their beliefs. The risk from HFTs’ endogenous liquidity provision, coupled with limits to participation by DMMs, intensifies the adverse selection faced by DMMs. This can generate a gap between liquidity supply from DMMs and liquidity demand by informed traders. As a result, endogenous liquidity provision produces fragile liquidity, with the possibility of market crashes when HFTs switch from liquidity provision to liquidity consumption in extreme times.
Prof. Tony He received his PhD in Finance in 2010 from UTS and PhD in Applied Mathematics in 1995 from Flinders University. He has been a co-editor of Journal of Economic Dynamics and Control since 2013. He is an internationally recognized expert in asset pricing, financial market modelling, market microstructure, and nonlinear dynamics in finance and economics. His published papers in the field of finance and economics, and was invited to contribute to the prestigious Handbook of Financial Markets and Handbook of Computational Economics, numerous keynote talks in the international conferences.