Editor’s Letter

We open the fall issue of The Journal of Trading with Domowitz and Giritharan’s activity-based approach to trading performance comparisons, in which the common denominator is an individual security. The approach exploits institutional trading activity, combining such information with market data and repurposing old tools with the goal of reducing institutional trading costs. Jain, Jain, and Jiang use a public dataset, provided by the Securities and Exchange Commission (SEC) covering all major U.S. exchanges, to study the impact of algorithmic trading and its fragmentation on market liquidity. Their findings suggest a market-making as well as predatory role of algorithmic trading that has policy implications.

Next, Kyj and Zheng demonstrate a framework for evaluating the performance quality of broker algorithms. This framework allows portfolio managers and traders to select broker algorithms that better align with their investment objectives. Martins presents two dynamic efficiency ratios based on simple price changes, not on external benchmarks or returns. The proposed ratios, mainly aimed for high-frequency trading, take into consideration such elements as the number of price innovations (changes), the number of transactions performed, and the time between transactions.

Bondar describes a method of cycle detection using inverse-logic spectral analysis that allows for fast detection of market cycles using any amount of input data, which can be smaller than the cycle length. The proposed method detects dominant cycles earlier and generates in-phase functions, which can be used as oscillators or trading signals, with virtually no phase lag. To complete the issue, Aquilina and Suntheim utilize a series of widely accepted liquidity measures and present evidence of liquidity in the U.K.corporate bond market for the period 2008-2014.

As always, we welcome your submissions. We value your comments and suggestions, so please email us at journals{at}investmentresearch.org.

Brian Bruce

Editor-in-Chief

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