This chapter examines high-frequency trading (HFT), including core groups of strategies and resulting impacts. Using order-by-order market data analysis, the chapter shows that much of what is often construed to be useless noise of order cancellations actually represents meaningful order...

A tax on financial transactions was recently proposed in the E.U. Parliament as a way to generate significant revenues. This article empirically shows that such a transaction tax would cripple modern securities markets. Specifically, the article demonstrates how a transaction tax of as little as...

This article compares the performance of systematic and discretionary hedge funds. In systematic funds, most trades are originated and executed by computer programs written for that purpose. In discretionary funds, human traders make decisions when to buy and sell which financial securities. The...

We derive the economic costs of latency induced by computer technology in trading. We show that the costs of latency are negligible in their expected value, but instead manifest themselves in increased risk to investors. We also show that our theoretical predictions firmly hold when tested on...

In the classic mean-variance portfolio theory as proposed by Harry Markowitz, the weights of the optimized portfolios are directly proportional to the inverse of the asset correlation matrix. However, most of contemporary portfolio optimization research focuses on optimizing the correlation...

Several exchanges in futures and options deploy pro-rata matching. The executed size of limit orders in pro-rata markets is never certain, unlike in price-time priority matching systems. This article derives the optimal size of limit orders in pro-rata markets given the trader's desired...

Using Artificial Intelligence (AI) techniques, we quantitatively examine the mentions of ESG terms in the U.S. corporate filings with the SEC over the 2019-20 period. We find that in our sample of companies, the management tends to focus ESG discussions in corporate filings along three...

We show a simple way to let the data speak for itself. Specifically, we show how a large mixed bag of data, potentially embedded with missing data points and collinearities, and therefore unsuitable for traditional econometric analysis, can be useful in building fast and meaningful big data and...

This article describes a simple test to assess the feasibility of high-frequency “pump-and-dump” arbitrage. Using the tick data for Eurex Eurobund futures for 2009-2010 period, the article shows practical implementation of the test. The Eurobund futures data does not support feasibility of...