Handbook of High Frequency Trading (eBook)

Greg N. Gregoriou (Herausgeber)

eBook Download: PDF | EPUB

2015 | 1. Auflage
494 Seiten
Elsevier Science (Verlag)
978-0-12-802362-4 (ISBN)

Infos

This comprehensive examination of high frequency trading looks beyond mathematical models, which are the subject of most HFT books, to the mechanics of the marketplace. In 25 chapters, researchers probe the intricate nature of high frequency market dynamics, market structure, back-office processes, and regulation. They look deeply into computing infrastructure, describing data sources, formats, and required processing rates as well as software architecture and current technologies. They also create contexts, explaining the historical rise of automated trading systems, corresponding technological advances in hardware and software, and the evolution of the trading landscape. Developed for students and professionals who want more than discussions on the econometrics of the modelling process, The Handbook of High Frequency Trading explains the entirety of this controversial trading strategy. - Answers all questions about high frequency trading without being limited to mathematical modelling - Illuminates market dynamics, processes, and regulations - Explains how high frequency trading evolved and predicts its future developments

Inhalt

Front Cover 1
The Handbook of High Frequency Trading 4
Copyright 5
CONTENTS 6
LIST OF CONTRIBUTORS 14
CONTRIBUTORS BIOGRAPHIES 18
EDITOR BIOGRAPHY 30
ACKNOWLEDGMENTS 32
INTRODUCTION 34
PART 1 Trading Activity 42
Chapter 1 - High-Frequency Activity on NASDAQ 44
1.1 INTRODUCTION 44
1.2 DATA 46
1.3 RESULTS 48
1.4 CONCLUSION 62
ACKNOWLEDGMENTS 64
REFERENCES 64
Chapter 2 - The Profitability of High-Frequency Trading: Is It for Real? 66
2.1 INTRODUCTION 66
2.2 DEFINITION AND CHARACTERISTICS OF HFT 67
2.3 WHAT CONSTITUTES HFT? 69
2.4 THE PROFITABILITY OF HFT 71
2.5 PROFITABILITY AS A FUNCTION OF THE HOLDING PERIOD 73
2.6 METHODOLOGY 76
2.7 DATA AND EMPIRICAL RESULTS 78
2.8 CONCLUSION 85
REFERENCES 85
Chapter 3 - Data Characteristics for High-Frequency Trading Systems 88
3.1 INTRODUCTION 88
3.2 LITERATURE REVIEW 89
3.3 METHODOLOGY 91
3.4 ANALYSIS OF DATA 91
3.5 CONCLUSION 97
ACKNOWLEDGMENTS 98
REFERENCES 98
Chapter 4 - The Relevance of Heteroskedasticity and Structural Breaks when Testing for a Random Walk with High-Frequency Fi ... 100
4.1 INTRODUCTION 100
4.2 METHOD 102
4.3 DATA 104
4.4 RESULTS 104
4.5 DISCUSSION 108
4.6 CONCLUSION 111
REFERENCES 114
Chapter 5 - Game Theoretical Aspects of Colocation in High-Speed Financial Markets 116
5.1 INTRODUCTION 116
5.2 LITERATURE AND STRUCTURE OF THE CHAPTER 117
5.3 COLOCATION AND LATENCY REDUCTION 118
5.4 EMPIRICAL EVIDENCE: TECHNICAL ARBITRAGE THROUGH LATENCY REDUCTION 120
5.5 MODELING STRATEGIC CHOICES ON COLOCATION 125
5.6 DISCUSSION: EVOLUTIONARY OPTIMIZATION AND SPATIAL DYNAMICS 129
5.7 CONCLUSION, LIMITATIONS, AND IMPLICATIONS FOR MONEY MANAGERS 132
REFERENCES 133
Chapter 6 - Describing and Regulating High-Frequency Trading: A European Perspective 136
6.1 INTRODUCTION 136
6.2 HFT DESCRIPTION AND DRIVERS 136
6.3 HIGH FREQUENCY TRADING VERSUS ALGORITHMIC TRADING 138
6.4 STRATEGIES OF HFT 141
6.5 CHARACTERISTICS OF AT AND HFT 143
6.6 ABOUT THE CONCEPT OF LIQUIDITY 143
6.7 HFT AND FLASH CRASHES 144
6.8 MIFID II AND HFT REGULATION IN THE EU 146
REFERENCES 149
PART 2 Evolution and the Future 152
Chapter 7 - High-Frequency Trading: Implications for Market Efficiency and Fairness 154
7.1 INTRODUCTION 154
7.2 NATURE OF HFT AND RECENT TRENDS 155
7.3 SOME SALIENT ISSUES RELATED TO HFT 156
7.4 HFT AND “FAIRNESS” 158
7.5 CONCLUDING REMARKS 162
REFERENCES 163
Chapter 8 - Revisioning Revisionism: A Glance at HFT's Critics 164
8.1 INTRODUCTION: HIGH-FREQUENCY TRADING UNDER SIEGE 164
8.2 THE LEWIS DEBATE IN CONTEXT 165
8.3 AN HFT TABLEAU: PERCEPTION VERSUS REALITY 173
8.4 CONCLUSION 187
REFERENCES 190
Chapter 9 - High-Frequency Trading: Past, Present, and Future 196
9.1 INTRODUCTION 196
9.2 THE ORIGINS OF HFT 197
9.3 HFT TODAY 198
9.4 HFT GOING FORWARD 203
9.5 HEDGE FUNDS 205
9.6 CONCLUSION 206
REFERENCES 206
Chapter 10 - High-Frequency Trading and Its Regulation in the Australian Equity Markets 208
10.1 INTRODUCTION 208
10.2 REGULATORY RESPONSE 209
10.3 CONCLUSION 210
REFERENCES 211
Chapter 11 - Global Exchanges in the HFT Nexus 212
11.1 INTRODUCTION 212
11.2 THE NEXUS OF AN EXCHANGE 214
11.3 EXCHANGES AND THEIR CUSTOMERS 216
11.4 REGULATORS AND EXCHANGES 219
11.5 CONCLUSION 229
ACKNOWLEDGMENTS 231
REFERENCES 232
PART 3 Liquidity and Execution 236
Chapter 12 - Liquidity: Systematic Liquidity, Commonality, and High-Frequency Trading 238
12.1 INTRODUCTION 238
12.2 HIGH-FREQUENCY TRADING AND LIQUIDITY 239
12.3 AN EMPIRICAL STUDY OF EQUITY MARKET LIQUIDITY 243
12.4 DATA 247
12.5 STATISTICAL RESULTS 248
12.6 CONCLUDING THOUGHTS 253
REFERENCES 253
Chapter 13 - We Missed It Again! Why Do So Many Market Orders in High-Frequency FX Trading Fail to be Executed? 256
13.1 INTRODUCTION 256
13.2 THE STRUCTURE OF THE EBS FX MARKET 259
13.3 AGGRESSIVE IOC ORDERS 263
13.4 CONCLUSION 270
ACKNOWLEDGMENTS 275
REFERENCES 275
Chapter 14 - Efficient Performance Evaluation for High-Frequency Traders 278
14.1 INTRODUCTION 278
14.2 THE MODEL 283
14.3 CONCLUSION 291
ACKNOWLEDGMENTS 291
REFERENCES 291
PART 4 Impact of News Releases 294
Chapter 15 - Do High Frequency Traders Care about Earnings Announcements? An Analysis of Trading Activity before, during, a 296
15.1 INTRODUCTION 296
15.2 HIGH FREQUENCY TRADING 297
15.3 RELATED LITERATURE 298
15.4 DATA 299
15.5 RESULTS 301
15.6 CONCLUSION 309
REFERENCES 310
Chapter 16 - Why Accountants Should Care about High Frequency Trading 312
16.1 INTRODUCTION 312
16.2 INTERNAL CONTROLS AND TONE AT THE TOP 315
16.3 CONCLUSION 317
ACKNOWLEDGMENT 317
REFERENCES 317
Chapter 17 - High-Frequency Trading under Information Regimes 320
17.1 INTRODUCTION 320
17.2 DATA 322
17.3 METHODOLOGY AND RESULTS 323
17.4 HIGH-FREQUENCY TRADING STRATEGIES 337
17.5 CONCLUSION 343
REFERENCES 344
Chapter 18 - Effects of Firm-Specific Public Announcements on Market Dynamics: Implications for High-Frequency Traders 346
18.1 INTRODUCTION 346
18.2 DATA AND METHODOLOGY 348
18.3 EMPIRICAL RESULTS 354
18.4 IMPLICATIONS FOR HFT 363
18.5 CONCLUSION 366
ACKNOWLEDGMENTS 366
REFERENCES 367
Chapter 19 - Machine News and Volatility: The Dow Jones Industrial Average and the TRNA Real-Time High-Frequency Sentiment ... 368
19.1 INTRODUCTION 368
19.2 RESEARCH METHODS AND DATA 371
19.3 THE SIGNIFICANCE OF THE SENTIMENT SCORES IN THE GARCH ANALYSIS OF DJIA RETURN SERIES 381
19.4 CONCLUSION 383
ACKNOWLEDGMENTS 383
REFERENCES 384
PART 5 Impact of Volatility 386
Chapter 20 - High-Frequency Technical Trading: Insights for Practitioners 388
20.1 INTRODUCTION 388
20.2 THE TRADING RULE METHODOLOGY 390
20.3 DATA 392
20.4 RESULTS 393
20.5 CONCLUSION 396
REFERENCES 397
Chapter 21 - High-Frequency News Flow and States of Asset Volatility 400
21.1 INTRODUCTION 400
21.2 DATA AND SAMPLE 403
21.3 DATA AND SAMPLE 404
21.4 METHODOLOGY AND MODEL SPECIFICATION 405
21.5 EMPIRICAL RESULTS AND IMPLICATIONS 409
21.6 CONCLUSION AND IMPLICATIONS 419
APPENDIX A: DOW JONES COMPOSITE AVERAGE 65 STOCKS 419
APPENDIX B: RAVENPACK ALGORITHMS 421
REFERENCES 423
Chapter 22 - News Releases and Stock Market Volatility: Intraday Evidence from Borsa Istanbul 426
22.1 INTRODUCTION 426
22.2 MODEL SPECIFICATION AND DATA 427
22.3 RESULTS AND DISCUSSION 429
22.3 CONCLUSION 435
REFERENCES 436
Chapter 23 - The Low-Risk Anomaly Revisited on High-Frequency Data 438
23.1 INTRODUCTION 438
23.2 LITERATURE REVIEW 440
23.3 METHODOLOGY 442
23.4 INVESTMENT UNIVERSE AND DATA COLLECTION 446
23.5 FINDINGS 447
23.6 CONCLUSION 455
APPENDIX 1 456
APPENDIX 2 457
ACKNOWLEDGMENTS 464
REFERENCES 464
Chapter 24 - Measuring the Leverage Effect in a High-Frequency Trading Framework 466
24.1 INTRODUCTION 466
24.2 MODEL SETTING 468
24.3 COMPUTATION OF LEVERAGE USING FOURIER METHODOLOGY 470
24.4 NUMERICAL RESULTS 480
24.5 CONCLUSION 486
ACKNOWLEDGMENTS 486
REFERENCES 486
INDEX 488

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Contributors Biographies

Erdinç Akyıldırım is a researcher and product developer at Borsa Istanbul. Prior to Borsa Istanbul, he worked as a quantitative analyst and derivatives portfolio manager at Industrial Development Bank of Turkey and as a research and teaching assistant at Bogazici University, Sabanci University, and Swiss Federal Institute of Technology in Zurich. He received a BSc degree in mathematics and MSc degree in financial engineering from Bogazici University. He completed his PhD in banking and finance at University of Zurich and Swiss Finance Institute in 2013. During his PhD, he worked on topics related to financial engineering, financial mathematics, and financial econometrics and has published several papers in international journals and conferences.

Paul U. Ali is Associate Professor at Melbourne University Law School and a member of the Law School's Centre for Corporate Law and Securities Regulation. Paul has published widely on banking and finance law. Paul has worked in the banking and finance and corporate groups of two leading Australian law firms. He has also worked in the securitization team of a bank, and has been a principal of a private capital firm and a consultant with a corporate governance advisory firm.

David E. Allen has a PhD in finance from the University of Western Australia, plus an MPhil in economics from the University of Leicester. In the course of the last 39 years, he has been employed by De Montfort University and the University of Edinburgh in the UK, and the University of Western Australia, Curtin University, and Edith Cowan University in Western Australia where he was Foundation Professor of Finance. He is currently Visiting Professor in the School of Mathematics and Statistics at the University of Sydney and Adjunct Professor at the University of South Australia. He has published 3 books and over 100 other contributions to books and refereed journal publications.

Albert Altarovici is a PhD student in mathematics at ETH Zurich. He specializes in stochastic optimal control and its applications to finance. In a recent paper with J. Muhle-Karbe and H.M. Soner, he studies the asymptotic expansion for the problem of optimal consumption and investment in a market with multiple risky assets, which are correlated Brownian motions and a money market paying constant interest rate where every transaction incurs a fixed transaction cost. He has taught mathematics and finance at the University of Virginia and ETH Zurich.

Richard Anderson is senior research fellow, Center for Economics and the Environment, and Adjunct Professor, School of Business and Entrepreneurship, Lindenwood University, St Charles, Missouri. Previously, he was vice president and economist, Federal Reserve Bank of St Louis, and economist, Board of Governors of the Federal Reserve System, Washington, D.C. Prior to joining the Federal Reserve, he taught at Michigan State University, Ohio State University, and the University of Michigan. He holds a PhD from MIT and a BA in economics from the University of Minnesota. His research focuses on empirical macroeconomics and monetary policy.

Jane M. Binner is Chair of finance, accounting and finance department, Birmingham Business School, Birmingham University, UK. Previously, she was Head of the Accounting and Finance Division at Sheffield Management School, Sheffield, UK and Reader in economics, Aston Business School, Birmingham, UK. She holds PhD, MSc, PGCE, and BA Hons in economics from the University of Leeds. Her research focuses on econometric modeling of financial markets, including asset prices and monetary aggregates.

Kris Boudt is Associate Professor in finance at Vrije Universiteit Brussel and part-time at the econometrics and finance department of the VU University of Amsterdam. He is a research partner of Finvex Group and affiliated researcher at KU Leuven. By training he has an MSc degree in economics from the University of Namur and a PhD from the KU Leuven (2008). Previously, he was Assistant Professor at the KU Leuven (2009–2012) and Guest Lecturer at the University of Illinois at Chicago. The research of Kris Boudt aims at developing econometric methodology for analyzing financial markets and optimizing portfolio risk. He has published in leading international finance and statistics journals including the International Journal of Forecasting, Journal of Empirical Finance, Journal of Financial Econometrics, Journal of Financial Markets, Journal of Risk, and Statistics and Computing, among others. Kris Boudt is in the editorial board of quantitative finance letters and is a coauthor of the high-frequency and PortfolioAnalytics packages.

Godfrey Charles-Cadogan is a Research Scientist in risk and uncertainty at the Institute for Innovation and Technology Management (IITM), Ted Rogers School of Management, Ryerson University. His work has been featured in Financial Research Letters, System Research and Behavioural Science, Proceedings of the American Statistical Association Business & Economics Section, Proceedings of Foundations and Applications of Utility, Risk and Decision Theory, Money Science, All About Alpha, and High Frequency Trading Review. He is the creator of the Cadogan stock price formula for high-frequency trading, and criterion function for predicting market crash from the probability weighting function implied by index option prices. His research interests are behavioral stochastic processes, financial economics, experimental economics, and decision theory. He holds Bachelor of Science degrees in statistics and actuarial mathematics as well as a Master of Science degree in mathematical statistics from the University of Michigan, and is a PhD candidate in economics at the University of Cape Town in Mathematical Behavioral Economics.

Giuseppe Ciallella graduated with honors at LUISS Guido Carli (Rome) Law School in 2009 and then spent one year as research assistant in Company Law and Securities Regulation at the same university. In 2012, he got an LL.M. from the London School of Economics and Political Science on a “Donato Menichella” Scholarship by the Bank of Italy. His PhD at LUISS Guido Carli is in Law and Economics and his field of research is Banking and Financial Regulation. During his PhD he also worked at Goldman Sachs International, Milan, and at Cleary Gottlieb Steen and Hamilton LLP, Rome.

Brittany Cole is a fifth year finance PhD student at the University of Mississippi. She received a bachelors degree in agriculture economics from the University of Tennessee at Martin and an MBA from the University of Mississippi. Brittany's research interests include corporate and municipal bond trading, information transmission, and market microstructure.

Imma Valentina Curato holds a PhD in mathematics for economic decisions from the University of Pisa, Italy. Currently, she is a Postdoc student at the Institute of Mathematical Finance, Ulm University, Germany, and an external consultant at the European Central Bank, Frankfurt, Germany. Her main research interests are in the field of nonparametric econometrics: estimation of volatility; of leverage processes in univariate and multivariate frameworks, high-frequency data analysis, calibration/forecast performance of multifactor stochastic volatility models; and of liquidity risk factors models.

Jonathan Daigle is a fourth year finance PhD student at the University of Mississippi. He received his undergraduate degree and MBA from the University of South Alabama. His research interests include private equity, IPOs, and acquisitions.

Nazmi Demir received his MSc and PhD from the University of California, Davis in agricultural economics in 1970 and his associate professorship in economic policy in Turkey, in 2000. Nazmi specialized in Leontief input–output, inefficiency models, and environments in agricultural economics. He was a board member of various international research centers for 18 years. After a long-term government employment at high positions in various departments such as development planning, agrarian reform, and administrative duties in Turkey he joined Bilkent University in the Department of Economics as an instructor first and then as a chairman of the banking and finance department teaching micro- and macroeconomics, statistics, banking, and finance. He has published numerous books and papers in Developing Economies, Economic Letters, Canadian Journal of Agricultural Economics, and Economic Systems Research.

Cumhur Ekinci is Assistant Professor of finance at Istanbul Technical University (ITU). He studied economics and finance at Bogazici, Paris I Pantheon-Sorbonne and Aix-Marseille III. Dr Ekinci established and worked in a trading room at CNAM in Paris. He has been teaching financial markets, investment, corporate finance and accounting at ITU, CNAM, Aix-Marseille, and ENPC. His research includes topics in market microstructure, behavioral finance, and risk measurement.

Dov Fischer is Assistant Professor of accounting at Brooklyn College. He holds a doctorate in accounting from University of Colorado at Boulder, and is a CPA in New York State. He researches financial reporting in the banking and pharmaceutical industries, financial derivatives, accounting ethics, International Financial Reporting Standards (IFRS), and accounting education. His research has been recognized and awarded by the American Accounting Association, and he regularly publishes in academic...

Produkt-Details

• Erscheint lt. Verlag: 5.2.2015
• Sprache: englisch
• Themenwelt: Recht / Steuern ► Wirtschaftsrecht
• Themenwelt: Wirtschaft ► Betriebswirtschaft / Management ► Finanzierung
• Themenwelt: Betriebswirtschaft / Management ► Spezielle Betriebswirtschaftslehre ► Bankbetriebslehre
• ISBN-10: 0-12-802362-7 / 0128023627
• ISBN-13: 978-0-12-802362-4 / 9780128023624