Editor’s Letter

Active traders, regulators, economists, and super-computing researchers collaborated to replicate and extend investigations of the Flash Crash of May 6, 2010, and other market anomalies in a National Laboratory HPC environment. Bethel, Leinweber, Rübel, and Wu open our Spring issue with a discussion of this work, which suggests that supercomputing tools and methods will be valuable to market regulators in achieving the goals of market safety, stability, and security. Wahal discusses modern electronic trading practices and algorithms from a structural approach developed in research on price formation. This is followed by Wang and Zhang who present a data-driven technical analysis algorithm with the application of a nonparametric local linear estimator. A new model for trading equities in a multiple market environment is presented and discussed by Sparrow. The model addresses concerns of adverse selection and quote stuffing and eliminates locked and crossed markets. Next, Criscuolo and Waelbroeck present a model to estimate how the expected implementation shortfall depends on the alpha profile and implementation schedule.

Because sampling techniques in traditional statistical process control may be too slow to allow us to detect rapid changes in market structure, Cooper and VanVliet developed statistical tests that examine each event using the generalized lambda distribution. Polidore discusses an empirical study based on observations from dark pools over a one-month period, which shows the value in predicting execution quality by fill type rather than simply by dark pool. Aldridge describes a simple test to assess the feasibility of high-frequency “pump and dump” arbitrage. We conclude this issue with Dardas’ analysis of intraday stock price and trading volume reactions to directors’ dealings announcements. He found that prompt public disclosure of directors’ dealings, as mandated by the EUTransparency Directive, is relevant for the pricing of stocks.

As always, we welcome your submissions. Please encourage those you know who have good papers or have made good presentations on tradingrelated subjects to submit them to us. Submission guidelines are included in this issue. We value your comments and suggestions, so please email us at journals{at}investmentresearch.org.

TOPICS: Exchanges/markets/clearinghouses, statistical methods, information providers/credit ratings

Brian Bruce

Editor-in-Chief

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