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