Search results for "Algorithmic trading"
showing 10 items of 17 documents
Structural Reforms in Banking: The Role of Trading
2017
In the wake of the recent financial crisis, significant regulatory actions have been taken aimed at limiting risks emanating from trading in bank business models. Prominent reform proposals are the Volcker Rule in the U.S., the Vickers Report in the UK, and, based on the Liikanen proposal, the Barnier proposal in the EU. A major element of these reforms is to separate "classical" commercial banking activities from securities trading activities, notably from proprietary trading. While the reforms are at different stages of implementation, there is a strong ongoing discussion on what possible economic consequences are to be expected. The goal of this paper is to look at the alternative approa…
Insider Trading and Market Behaviour Around Takeover Announcements in the Spanish Market
2002
As microstructure models assume informational asymmetries among investors, the possibility of insider trading is a sound reason for liquidity suppliers to increase the bid-ask spread. In this way, the tested effect that takeover announcements have on target firm returns becomes a strong motive for trading with insider information. In this paper we firstly investigate whether liquidity suppliers value the possibility of trading with informed agents in this sort of event. We analyse the adverse selection cost from bid-ask spread behaviour around takeover announcements. We find that liquidity suppliers enlarge adverse selection cost suggesting that they value the possibility of facing to insid…
A Simulation Analysis of the Microstructure of an Order Driven Financial Market with Multiple Securities and Portfolio Choices
2005
In this paper we propose an artificial market where multiple risky assets are exchanged. Agents are constrained by the availability of resources and trade to adjust their portfolio according to an exogenously given target portfolio. We model the trading mechanism as a continuous auction order-driven market. Agents are heterogeneous in terms of desired target portfolio allocations, but they are homogeneous in terms of trading strategies. We investigate the role played by the trading mechanism in affecting the dynamics of prices, trading volume and volatility. We show that the institutional setting of a double auction market is sufficient to generate a non-normal distribution of price changes…
The timeline of trading frictions in the European carbon market
2012
We evaluate the quality of prices of EU-ETS, the most active European derivative market for greenhouse gas emissions allowances (EUAs). So far, this market has had two phases, a trial phase (from 2005 to 2007) and a commitment phase (from 2008 to 2012). The true value of a trial-phase EUA at the beginning of 2008 was inevitably zero because it could not be used in the commitment phase to cover emission targets. However, continued rumors of over-allocation of EUAs led to an early collapse of the market by May 2007. We study whether this market breakdown and the subsequent outbreak of the international financial crisis had a persistent effect on the quality of the commitment phase. We provide…
Effects of Behavioural Finance on Emerging Capital Markets
2014
Abstract A recent common view of finance experts is that it is becoming increasingly difficult to understand how the economy as a whole works. Although the efficient market theory might be considered an ideal model enabling the interpretation of market behavior, it has begun to lose ground, and the rationality hypothesis failed to explain the excessive volatility of the returns and trading volume recorded on both developed capital markets and emerging ones. Adding the behavioral finance perspective to the equation can help us to understand better how market agents will react. In this article, we investigate the factors that may explain the trading volume evolution on two emerging capital ma…
Market Impact and Trading Profile of Hidden Orders in Stock Markets
2009
We empirically study the market impact of trading orders. We are specifically interested in large trading orders that are executed incrementally, which we call hidden orders. These are statistically reconstructed based on information about market member codes using data from the Spanish Stock Market and the London Stock Exchange. We find that market impact is strongly concave, approximately increasing as the square root of order size. Furthermore, as a given order is executed, the impact grows in time according to a power law; after the order is finished, it reverts to a level of about 0.5-0.7 of its value at its peak. We observe that hidden orders are executed at a rate that more or less m…
Trading Nokia: The roles of the Helsinki vs the New York stock exchanges
2004
We use the Autoregressive Conditional Duration (ACD) framework of Engle and Russell (1998) to study the effect of trading volume on price duration (ie the time lapse between consecutive price changes) of a stock listed both in the domestic and the foreign market. As a case study we use the example of Nokia's share, which is actively traded both in the Helsinki Stock Exchange and the New York Stock Exchange (NYSE). We find asymmetry in the volume-price duration relationship between the two markets. In the NYSE the negative relationship is much stronger and exists both during and outside common trading hours. Outside common trading hours no such relationship is significant in Helsinki. Based …
Assessing price clustering in European Carbon Markets
2012
Abstract The presence of price clustering in markets is taken as a sign of market inefficiency that can influence trading strategies. In this paper, we study the presence of a concentration in prices in carbon futures markets. Specifically, we analyze the European Carbon Futures Markets and test for evidence of preference for certain prices above others. Our results reveal the strong presence of price clustering in the carbon market at prices ending in digits 0 and 5. These findings support the attraction hypothesis, which endorses a significant clustering on gravitational prices, but also backs the negotiation hypothesis, which advocates greater clustering when trading costs are higher.
A Comprehensive Look at the Real-Life Performance of Moving Average Trading Strategies
2015
Despite the enormous current interest in market timing and a series of publications in academic journals, there is still lack of comprehensive research on the evaluation of the profitability of trading rules using methods that are free from the data-snooping bias. In this paper we utilize the longest historical dataset that spans 155 years and extend previous studies on the performance of moving average trading rules in a number of important ways. Among other things, we investigate whether overweighting the recent prices improves the performance of timing rules; whether there is a single optimal lookback period in each trading rule; and how accurately the trading rules identify the bullish …
Spanish Stock Returns: Where is the Weather Effect?
2003
Psychological studies support the existence of an influence of weather on mood. Saunders (1993) and Hirshleifer and Shumway (2001) argue that the weather could affect the behaviour of market traders and, therefore, it should be reflected in the stock returns. This paper investigates the possible relation between weather and market index returns in the context of the Spanish market. In 1989, this market changed its open outcry trading system into a computerised and decentralised trading system. Therefore, it is possible to check the influence of weather variables (sunshine hours and humidity levels) on index returns in an open outcry trading system, and to compare it with a screen traded env…