There is an increasing concern that fast trading firms magnify adverse selection costs and illiquidity by picking off stale quotes. This article investigates the effects of banning proprietary traders from liquidity taking on the banned and the market overall. The fast arbitrageur exited the...

This working paper was written by Yin-wong Cheung (University of California, Santa Cruz).We construct an empirical model for daily highs and daily lows of US stock indexes based on the intuition that highs and lows do not drift apart over time. Our empirical results show that daily highs and...

The PIN model and its extensions have proven challenging in their estimation, as they suffer from several computational problems. We set in this paper to address these computational issues by proposing the use of the expectation-conditional maximization (ECM) algorithm to estimate the various...

Providing liquidity in over-the-counter markets is a challenging under-taking, in large part because a market maker does not observe where their competitors quote, nor do they typically know how many rivals they compete with or what the trader's overall liquidity demand is. Optimal pricing...

We model the decision to exhaust depth, which either flips the best quote to the opposite side or widens the spread. Such events often revert to the previous best quote. The model implies that quote flipping results in trade clusters at the competitive equilibrium. Using the S&P E-mini futures...

The multilayer probability of informed trading (MPIN) model, developed by Ersan (2016), releases the assumption of single type of information events in the original PIN model of Easley et al. (1996). Identification of the number of layers in a dataset is applied through a layer detection...

A key issue for decentralised markets like FX is how the market responds to extreme situations. Using data on FX transactions with a precise identification of Algorithmic trading (AT), we find that AT, broadly defined, appears to have contributed to the deterioration of market quality following...

Using a proprietary dataset from 2016 to 2019, we find that order flows from foreign investors, facilitated by regulatory liberalization through several channels, present strong predictive power for future stock returns in the Chinese market. Most surprisingly, foreign investors possess the...

Previous literature has shown that individual investors in the stock markets trade excessively and underperform the market index. Since the COVID-19 outbreak in 2020, the annual trading turnover of individual investors in the Korean stock markets is estimated as above 1,600% and their investment...

We extract the news component of short-selling activity by accounting for important cross-sectional, distributional differences in short interest data. The resulting measure of surprise in short interest negatively predicts the cross section of both U.S. and international equity returns. Our...

The recent emergence of COVID-19 and the subsequent short-selling restriction (SSR) imposed on some equity markets provide us with a unique framework to analyze the effects of this kind of measure on market quality in the context of increasingly automated equity markets. We contribute to the...

This paper examines the momentum strategy in Australia under the debate on whether momentum strategy is profitable in Australia. It studies both the price and alpha momentum strategy performance under several lookback periods, and applies short position adjustment and volatility scaling. I...

Colocation services offered by stock exchanges enable market participants to achieve execution costs for large orders that are substantially lower and less sensitive to transacting against high-frequency traders. However, these benefits manifest only for orders executed on the colocated brokers'...

We analyze how market fragmentation affects market quality of SME and other less actively traded stocks. Compared to large stocks, they are less likely to be traded on multiple venues and show, if at all, low levels of fragmentation. Concerning the impact of fragmentation on market quality, we...

One of the challenges that economic experiments that use artificial financial markets to explore high-frequency trading face, is the development of a sufficiently sophisticated software. Moreover, it is not trivial to adequately communicate the complex financial market rules to non-experts. The...

This paper introduces a new algorithm for exploiting time-series predictability-based patterns to obtain an abnormal return, or alpha, with respect to a given benchmark asset pricing model. The algorithm proposes a deterministic daily market timing strategy that decides between being fully...

This study investigates the nexus of stock liquidity and trade-credit policies in China from 2002 to 2017. The estimates are robust to alternative proxies, various fixed-effects, and the exogenous impact of Chinese split share structure reforms (SSSR) 2005-06 is investigated through the...

Most technical trading strategies use the official closing price for analysis. But what is the effect when the official closing price is subject to market manipulation? This paper answers this question by testing the difference of profitabilities between using the official closing price and the...

A highly significant feature of the stock market is its efficiency, which is associated with information efficiency. However, the liquidity of stock on the market is its essential characteristic. The inflow of information in highly liquid markets allows for the maintenance of high information...

The annual income earned plays a very important role in stock investing as it influences several dimensions of the investment process. The main goal of this research was to examine the role of the annual income earned by the secondary equity investors in the decision- making process. The...

This study examines the impact of communication on investors' trading frequency based on a unique dataset drawn from a Chinese social trading platform. We find robust evidence that real-account portfolio owners on the platform trade more frequently under the influence of the comments posted by...

Academic research has identified several factors that affect price movements; however, the scenario changes abruptly in the case of very short time price changes (VSTPC). This topic is not specifically examined in the existing literature; nonetheless, the behavior of the market microstructure is...

We study liquidity provision by competitive high-frequency trading firms (HFTs) in a dynamic trading model with private information. Liquidity providers face adverse selection risk from trading with privately informed investors and from trading with other HFTs that engage in latency arbitrage...

Using a market model and principal component analysis, we investigate the existence of common effects in order imbalance in the Borsa Istanbul's option market. Accordingly, we find the presence of commonality in order imbalance for call options and an even more dominant presence in put options....

We examine the soundness of high-frequency trading (HFT) proxies that are widely defined on the limit order book (LOB) information. We use a unique TRTH (Thomson Reuters Tick History) millisecond time-stamped intraday trades and quotes dataset enriched with 10 levels of LOB depth messages for...

In recent years, Bitcoin has received substantial attention as potentially high-earning investment. However, its volatile price movement exhibits great financial risks. Therefore, how to accurately predict and capture changing trends in the Bitcoin market is of substantial importance to...

We study liquidity provision by competitive high-frequency trading firms (HFTs) in a dynamic trading model with private information. Liquidity providers face adverse selection risk from trading with privately informed investors and from trading with other HFTs that engage in latency arbitrage...

We characterize the demand function of multi-national corporations in foreign exchange (FX) markets and assess its impact on equilibrium asset prices. Our empirical findings suggest that corporate order flow does not consistently predict future returns, it is highly auto-correlated and, in...

I consider limit order book events that are likely to contribute to price discovery in the foreign exchange market, specifically, limit orders and transactions (market orders). The variance decomposition shows that improving orders and worsening cancels, both limit order events, substantially...

It is a widely known fact that the intraday seasonality of trading intervals for financial transactions such as stocks is short at the beginning of business hours and long in the middle of the day. In this paper, we extend the stochastic conditional duration (SCD) model to capture the pattern of...

We introduce a new mechanism for call auctions which are widely used in stock exchanges. Our unique design incorporates contingent claims (buy stock A, if selling stock B) into the price discovery process. With our proposed mechanism, we show that higher liquidity during the call auctions is...

The present paper is focused on the solution of optimal control problems such as optimal acquisition, optimal liquidation, and market making in relation to the high-frequency trading market. We have modeled optimal control problems with the price approximated by the diffusion process for the...