Liquidity effects of trading frequency
构建了一个离散时间模型，内生地分析交易频率对市场流动性的双重影响：高频交易既可能提高市场效率，也可能在交易者偏离市场中性时引发流动性危机（闪崩）。
Abstract In this paper, we present a discrete‐time modeling framework, in which the shape and dynamics of a Limit Order Book (LOB) arise endogenously from an equilibrium between multiple market participants (agents). We use the proposed modeling framework to analyze the effects of trading frequency on market liquidity in a very general setting. In particular, we demonstrate the dual effect of high trading frequency. On the one hand, the higher frequency increases market efficiency, if the agents choose to provide liquidity in equilibrium. On the other hand, it also makes markets more fragile, in the sense that the agents choose to provide liquidity in equilibrium only if they are market neutral (i.e., their beliefs satisfy certain martingale property). Even a very small deviation from market neutrality may cause the agents to stop providing liquidity, if the trading frequency is sufficiently high, which represents an endogenous liquidity crisis (also known as flash crash) in the market. This framework enables us to provide more insight into how such a liquidity crisis unfolds, connecting it to the so‐called adverse selection effect.