The Handbook of HIGH FREQUENCY. GREG N. GREGORIOU State University of New York (Plattsburgh)

Transcription

1 The Handbook of HIGH FREQUENCY TRADING GREG N. GREGORIOU State University of New York (Plattsburgh) ELSEVIER Amsterdam Boston Heidelberg London New York Oxford Paris San Diego San Francisco Singapore Sydney Tokyo Academic Press is an imprint of Elsevier

2 CONTENTS List of Contributors Contributors Biographies Editor Biography Acknowledgments Introduction xiii xvii xxix xxxi xxxiii Part 1 Trading Activity 1 1. High-Frequency Activity ori NASDAQ 3 Martin Scholtus and Dick van Dijk 1.1 Introduction Data Results Conclusion 21 Acknowledgments 23 References The Profitability of High-Frequency Trading: Is It for Real? 25 Imad Moosa and Vikash Ramiah 2.1 Introduction Definition and Characteristics of HFT What Constitutes HFT? The Profitability of HFT Profitability as a Function ofthe Holding Period Methodology Data and Empirical Results Conclusion 44 References Data Characteristics for High-Frequency Trading Systems 47 Bruce Vanstone and Tobias Hahn 3.1 Introduction Literature Review Methodology Analysis of Data Conclusion 56 v

3 vi Contents Acknowledgments 5' References The Relevance of Heteroskedasticity and Structural Breaks when Testing for a Random Walk with High-Frequency Financial Data: Evidence from ASEAN Stock Markets 59 Hooi Hooi Lean, Vinod Mishra, and Russell Smyth 4.1 Introduction Method Data Results Discussion Conclusion 70 References Game Theoretical Aspects of Colocation in High-Speed Financial Markets 75 Camillo von Müller 5.1 Introduction Literature and Structure of the Chapter Colocation and Latency Reduction Empirical Evidence: Technical Arbitrage through Latency Reduction Modeling Strategie Choices on Colocation Discussion: Evolutionary Optimization and Spatial Dynamics Conclusion, Limitations, and Implications for Money Managers 91 References Describing and Regulating High-Frequency Trading: A European Perspective 95 Giuseppe Cialfella 6.1 Introduction HFT Description and Drivers High Frequency Trading versus Algorithmic Trading Strategies of HFT Characteristics of AT and HFT About the Concept of Liquidity HFT and Flash Crashes MiFID II and HFT Regulation in the EU 105 References 1 Qg

4 Contents vii Part 2 Evolution and the Future High-Frequency Trading: Implications for Market Efficiency and Fairness 113 Tayyeb Shabbir 7.1 Introduction Nature of HFT and Recent Trends Some Salient Issues Related to HFT HFT and "Fairness" Concluding Remarks 121 References Revisioning Revisionism: A Glance at HFT's Critics 123 Jeffrey G. Macintosh 8.1 Introduction: High-Frequency Trading Under Siege The Lewis Debate in Context An HFT Tableau: Perception versus Reality Conclusion 146 References High-Frequency Trading: Past, Present, and Future 155 Frangois-Serge Lhabitant and Greg N. Gregoriou 9.1 Introduction The Origins of HFT HFT Today HFT Going Forward Hedge Funds Conclusion 165 References High-Frequency Trading and its Regulation in the Australian Equity Markets 167 Paul U. Ali 10.1 Introduction Regulator/ Response Conclusion 169 References 170

5 viii Contents 11. Global Exchanges in the HFT Nexus 171 David R. Meyer and George Guernsey 11.1 Introduction The Nexus of an Exchange Exchanges and Their Customers Regulators and Exchanges Conclusion 188 Acknowledgments 190 References 191 Part 3 Liquidity and Execution Liquidity: Systematic Liquidity, Commonality, and High-Frequency Trading 197 Richard G. Anderson, Jane M. Binner, Björn Hagströmer, and Birger Nilsson 12.1 Introduction High-Frequency Trading and Liquidity An Empirical Study of Equity Market Liquidity Data Statistical Results Concluding Thoughts 212 References We Missed It Again! Why Do So Many Market Orders in High-Frequency FX Trading Fail to be Executed? 215 Masayuki Susai and Yushi Yoshida 13.1 introduction The Structure of the EBS FX Market Aggressive IOC Orders Conclusion 229 Acknowledgments 234 References Efficient Performance Evaluation for High-Frequency Traders 237 Godfrey Charles-Cadogan 14.1 Introduction The Model Conclusion 250 Acknowledgments 250 References 250

6 Contents ix Part 4 Impact of News Releases Do High Frequency Traders Care about Earnings Announcements? An Analysis of Trading Activity before, during, and after Regulär Trading Hours 255 Brittany Cote, Jonathan Da igle, Bonnie F. Van Ness, and Robert A. Van Ness 15.1 Introduction High Frequency Trading Related Literature Data Results Conclusion 268 References Why Accountants Should Care about High Frequency Trading 271 Dov Fischer 16.1 Introduction Internal Controls and Tone at the Top Conclusion 276 Acknowledgment 276 References High-Frequency Trading under Information Regimes 279 Erick Rengifo and Rossen Trendafilov 17.1 Introduction Data Methodology and Results High-Frequency Trading Strategies Conclusion 302 References Effects of Firm-Specific Public Announcements on Market Dynamics: Implications for High-Frequency Traders 305 Erding Akyildirim, Albert Altarovici, and Cumhur Ekinci 18.1 Introduction Data and Methodology Empirical Results Implications for HFT Conclusion 325 Acknowledgments 325 References 326

7 x Contents 19. Machine News and Volatility: The Dow Jones Industrial Average and the TRNA Real-Time High-Frequency Sentiment Series 327 David E. Allen, Michael J. McAleer, and Abhay K. Singh 19.1 Introduction Research Methods and Data The Significance of the Sentiment Scores in the GARCH Analysis of DJIA Return Series Conclusion 342 Acknowledgments 342 References 343 Part 5 Impact of Volatility High-Frequency Technical Trading: Insights for Practitioners 347 Camillo Lento and Nikola Gradojevic 20.1 Introduction The Trading Rule Methodology Data Results Conclusion 355 References High-Frequency News Flow and States of Asset Volatility 359 Kin-Yip Ho, Yanlin Shi, and Zhaoyong Zhang 21.1 Introduction Data and Sample Data and Sample Methodology and Model Specification Empirical Results and Implications Conclusion and Implications 378 Appendix A: Dow Jones Composite Average 65 Stocks 378 Appendix B: RavenPack Algorithms 380 References News Releases and Stock Market Volatility: Intraday Evidence from Borsa Istanbul 385 M. Nihat Solakoglu and Nazmi Demir 22.1 Introduction Model Specification and Data 385

8 Contents xi 22.3 Results and Discussion Conclusion 394 References The Low-Risk Anomaly Revisited on High-Frequency Data 397 Kris Boudt, Giang Nguyen and Benedict Peeters 23.1 Introduction Literature Review Methodology Investment Universe and Data Collection Findings Conclusion 414 Appendix Appendix Acknowledgments 423 References Measuring the Leverage Effect in a High-Frequency Trading Framework 425 Imma Valentina Curato and Simona Sanfelici 24.1 Introduction Model Setting Computation of Leverage Using Fourier Methodology Numerical Results Conclusion 445 Acknowledgments 445 References 445 Index 447