RT Journal Article
SR Electronic
T1 Empirical Limitations on High-Frequency Trading Profitability
JF The Journal of Trading
FD Institutional Investor Journals
SP 50
OP 62
DO 10.3905/jot.2010.5.4.050
VO 5
IS 4
A1 Michael Kearns
A1 Alex Kulesza
A1 Yuriy Nevmyvaka
YR 2010
UL https://pm-research.com/content/5/4/50.abstract
AB Addressing the ongoing controversy of overly aggressive high-frequency trading practices in financial markets, Kearns, Kulesza, and Nevmyvaka report the results of an extensive empirical study estimating the maximum possible profitability of such practices and arrive at figures that are surprisingly modest. Their findings highlight the tension between execution cost and trading horizon that is confronted by high-frequency traders. They provide a controlled and large-scale empirical perspective on the high-frequency debate that has heretofore been absent. The authors’ study employs a number of novel empirical methods, including the simulation of an “omniscient” high-frequency trader who can see the future and act accordingly.TOPICS: VAR and use of alternative risk measures of trading risk, simulations, financial crises and financial market history