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Article

The Portfolio Role of High-Frequency Hedge Funds

John B. Abbink
The Journal of Trading Winter 2012, 7 (1) 34-42; DOI: https://doi.org/10.3905/jot.2012.7.1.034
John B. Abbink
is an author and independent consultant in Suffolk, UK.
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Abstract

It is not obvious why trading over short time horizons should have a different return profile than those of more leisurely strategies applied to the same instruments. But the distinctiveness of directional high-frequency trading strategies is apparent when it is recognized that the source of their returns differs from that of longer-term strategies. Given sufficient diversification, high-frequency funds offer a more-effective form of market neutrality than is achievable by most market-neutral strategies. This conclusion is not always apparent to investors faced with a proposal to invest in a high-frequency fund, not least because of the paucity of data on high-frequency trading in general. This article seeks to establish a systematic explanation of why this should be so, although it is unable to offer statistical confirmation. However, the article notes that there is little that distinguishes high-frequency arbitrage from longer-horizon trades of that type.

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The Journal of Trading: 7 (1)
The Journal of Trading
Vol. 7, Issue 1
Winter 2012
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The Portfolio Role of High-Frequency Hedge Funds
John B. Abbink
The Journal of Trading Dec 2011, 7 (1) 34-42; DOI: 10.3905/jot.2012.7.1.034

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The Portfolio Role of High-Frequency Hedge Funds
John B. Abbink
The Journal of Trading Dec 2011, 7 (1) 34-42; DOI: 10.3905/jot.2012.7.1.034
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  • Article
    • Abstract
    • AN ARGUMENT AGAINST DISTINGUISHING INVESTMENT TECHNIQUES BY TIME HORIZON
    • A WORLD BENEATH THE NOTICE OF FUNDAMENTALS
    • DISTINGUISHING CUMULATIVE RETURN STREAMS BY TIME HORIZON
    • INFORMATION IN THE “NOISE”
    • HFT TECHNIQUES
    • THE OPTIONALITY OF DIRECTIONAL HFT
    • THE LIMITS OF HFT
    • HFT AS A COMPONENT OF INVESTMENT PORTFOLIOS
    • ENDNOTES
    • REFERENCES
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