Can I read The Random Walk of High Frequency Trading on EtoBox?

The Random Walk of High Frequency Trading by Aldrich, Eric M.; Heckenbach, Indra; Laughlin, Gregory is a scholarly article available to read on EtoBox.

What is The Random Walk of High Frequency Trading about?

This paper builds a model of high-frequency equity returns by separately modeling the dynamics of trade-time returns and trade arrivals. Our main contributions are threefold. First, we characterize the distributional behavior of high-frequency asset returns both in ordinary clock time and in trade time. We show that when controlling for pre-scheduled market news events, trade-time returns of the highly liquid near-month E-mini S&P 500 futures contract are well characterized by a Gaussian distribution at very fine time scales. Second, we develop a structured and parsimonious model of clock-time returns by subordinating a trade-time Gaussian distribution with a trade arrival process that is associated with a modified Markov-Switching Multifractal Duration (MSMD) model. This model provides an excellent characterization of high-frequency inter-trade durations. Over-dispersion in this distribution of inter-trade durations leads to leptokurtosis and volatility clustering in clock-time returns, even when trade-time returns are Gaussian. Finally, we use our model to extrapolate the empirical relationship between trade rate and volatility in an effort to understand conditions of market fail

Author

Aldrich, Eric M.; Heckenbach, Indra; Laughlin, Gregory

Published

2014

Language

EN