The market maker employs the alpha signal to minimise adverse selection costs, execute directional trades in anticipation of price changes, and to manage inventory risk. We employ Nasdaq high-frequency data to estimate model parameters and to illustrate the performance of the market making strategy. Buy market orders (MOs) exert a short-lived upward pressure on the midprice, whereas sell MOs exert a short-lived downward pressure on the midprice. The momentum in the midprice of the asset depends on the execution of liquidity taking orders and the arrival of news. alpha signal) to make decisions in their liquidity provision strategy in an order-driven electronic market. We show how a market maker employs information about the momentum in the price of the asset (i.e.
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