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Trading around the Close

Jeff Bacidore, Ben Polidore, Wenjie Xu and Cindy Y. Yang
The Journal of Trading Winter 2013, 8 (1) 48-57; DOI: https://doi.org/10.3905/jot.2012.8.1.048
Jeff Bacidore
is the managing director and head of Algorithmic Trading at ITG in New York, NY.
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  • For correspondence: jeff.bacidore@itg.com
Ben Polidore
is a director of Algorithmic Trading at ITG in New York, NY.
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  • For correspondence: ben.polidore@itg.com
Wenjie Xu
is a quantitative analyst in Algorithmic Trading for ITG in New York, NY.
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  • For correspondence: Wenjie.xu@itg.com
Cindy Y. Yang
is a quantitative analyst in Algorithmic Trading for ITG in New York, NY.
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  • For correspondence: yu.yang@itg.com
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Abstract

In this paper, we discuss the issues a trader should consider when trading in and around the closing auction. Specifically, we describe the auction mechanisms used by the exchanges, including the order types offered and pre-auction information that the exchanges publish. We then provide an empirical analysis of trading volume, auction imbalances, and price reactions to imbalances, and discuss how a trader should use those findings to execute orders optimally. Our results suggest that algorithms meant to target the close should focus much of their open market trading to the period prior to the imbalance announcement, as opposed to just prior to the close itself. We also show that those algorithms should trade differently depending on whether the trade is a rebalance trade or a flow trade.

TOPICS: Statistical methods, exchanges/markets/clearinghouses, portfolio management/multi-asset allocation

  • © 2012 Investment Technology Group, Inc. All rights reserved. Not to be reproduced or retransmitted without permission. 110712-19961.
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The Journal of Trading: 8 (1)
The Journal of Trading
Vol. 8, Issue 1
Winter 2013
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Trading around the Close
Jeff Bacidore, Ben Polidore, Wenjie Xu, Cindy Y. Yang
The Journal of Trading Dec 2012, 8 (1) 48-57; DOI: 10.3905/jot.2012.8.1.048

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Trading around the Close
Jeff Bacidore, Ben Polidore, Wenjie Xu, Cindy Y. Yang
The Journal of Trading Dec 2012, 8 (1) 48-57; DOI: 10.3905/jot.2012.8.1.048
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  • Article
    • Abstract
    • NYSE & NASDAQ CLOSE AUCTION MECHANICS
    • AN EMPIRICAL STUDY OF THE CLOSE
    • IMPACT OF IMBALANCES ON PRICES
    • TRADING STRATEGY IMPLICATIONS: REBALANCE TRADES VERSUS FLOW TRADES
    • CONCLUSION
    • ENDNOTES
    • REFERENCES
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