%0 Unpublished work %T Rock around the clock: an agent-based model of low- and high-frequency trading %+ ICN Business School %+ Centre Européen de Recherche en Economie Financière et Gestion des Entreprises (CEREFIGE) %+ Observatoire français des conjonctures économiques (Sciences Po) (OFCE) %+ Scuola Universitaria Superiore Sant'Anna [Pisa] (SSSUP) %A Jacob Leal, Sandrine %A Napoletano, Mauro %A Roventini, Andrea %A Fagiolo, Giorgio %8 2014-02-01 %D 2014 %K Agent-based models %K Limit order book %K High-frequency trading %K low-frequency trading %K Flash crashes %K Market volatility %Z Humanities and Social Sciences/Economics and FinancePreprints, Working Papers, ... %X 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. On the contrary, high-frequency traders activation is event-driven and depends on price the contrary, high-frequency traders activation is event-driven and depends on price formation produced by low-frequency traders. Monte-Carlo simulations reveal that the model replicates the main stylized facts of financial markets. Furthermore, we found that the presence of high-frequency trading 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 found that higher rates of order cancellation by high-frequency traders increase the incidence of flash crashes but reduce their duration. %G English %2 https://sciencespo.hal.science/hal-01070542/document %2 https://sciencespo.hal.science/hal-01070542/file/wp2014-03.pdf %L hal-01070542 %U https://sciencespo.hal.science/hal-01070542 %~ SHS %~ SCIENCESPO %~ AO-ECONOMIE %~ UNIV-LORRAINE %~ MAGECO %~ ICN %~ FINANCE %~ CEREFIGE-UL %~ OFCE %~ CEREFIGE-ET-FCC %~ SCPO_OA %~ SCPO-REPEC