Traditional variables taken into consideration by investors have included growth prospects, competition, recent earnings, dividends, long-term volatility and the like. Fairly recently, investor relations began taking into account and explaining shorter-term market moves, such as the stock’s responses to market-wide events. Lately, however, this information is no longer sufficient. Today’s institutional investors increasingly care about the comparative intraday price dynamics of stocks, including participation of aggressive high-frequency traders and the stock’s propensity for flash crashes. Aggressive high-frequency traders are the ultra-fast mostly automated trading systems that are capable of swooping in and out of a stock at lightning speed. Aggressive high-frequency traders have been shownRead More →

You feel it, you know it: some stocks tend to have more intraday volatility than other stocks. Some stocks are specifically more prone to Flash Crashes than others. Some stocks have higher aggressive high-frequency trading (HFT) participation than other stocks. At this point in financial innovation, no savvy portfolio manager can afford to ignore intraday risk, and, instead, needs to make it an integral part of his portfolio selection model. Why do intraday dynamics need to enter portfolio selection models? Can’t portfolio managers simply ride out the intraday ups and downs in their pursuit of longer-term goals? The answer, yes, but at a considerable cost.Read More →

Recent market moves left many buy-side investors puzzled and wanting for more information. Was the extreme volatility observed in the Fall of 2014 a gust of wind or a hurricane, a harbinger of further price swings to come? Our research, AbleMarkets.com, provides answers. Take an absolutely ordinary day, Monday, October 13, 2014. It was Columbus Day, a banking holiday, when stock markets are open, nevertheless. Typically, Columbus Day is a quiet trading day, with little news to move the securities prices. This day was no different: the only event listed on Bloomberg LP was a speech by Chicago Federal Reserve Bank President Charles Evans. Dr.Read More →

By Irene Aldridge What is the quantitative evidence regarding the presence of aggressive high-frequency traders (HFTs) in today’s markets? Our firm’s AbleMarkets Aggressive HFT Index tracks the participation of aggressive HFTs in real-time and offers some interesting observations. As 2014 rolls to a close, we are able to offer comprehensive statistics on tick-by-tick, minute-by-minute and hour-by-hour evolution of aggressive HFT participation during this past year, as well as daily statistics presented in this article. Why does aggressive HFT participation matter? Multiple academic studies have confirmed that aggressive HFTs worsen market conditions for institutional investors. The aggressive HFTs are not to be confused with the passiveRead More →

By Irene Aldridge With the advent of high-frequency trading, measuring microstructure risk has not only become easier due to the availability of data, it has also become mandatory. Over the past several years, so-called flash crashes have triggered stop losses and caused numerous investors to liquidate positions early or forced investors out on the sidelines of the market altogether. Aggressive high-frequency traders have been shown to worsen market conditions and instilled dread, anger and a feeling of hopelessness in many market participants. Runaway algorithms sank ships like Knight Capital Group, dealing multi-million dollar losses in a matter of minutes. While the academics have worked onRead More →

By Irene Aldridge Just over two weeks ago, NASDAQ stopped trading midday, fueling a new wave of speculation about the reliability and, ultimately, appropriateness of using computer technology in trading. Critics of trading algorithms readily jumped on the news bandwagon, happily denouncing technology as a source of all economic ills. In reality, however, on Aug. 22, 2013, NASDAQ halted its servers to comply with instructions from the U.S Securities and Exchange Commission (SEC). Had NASDAQ continued trading as usual that day, it would undoubtedly face hefty fines on the order of $10 to $15 million, like the penalty assessed to the New York Stock ExchangeRead More →

By Irene Aldridge Many investors are rightfully concerned about market manipulation — after all, who wants to be taken for a ride? High-frequency market manipulation proved to be particularly disconcerting to many investors as it is evolutionary, difficult to detect without appropriate tools, and is still not universally understood. Adding even more complexity to investor decision-making is the explosion of various types of exchanges and other alternative trading venues, some known as dark pools. As my latest research shows, however, certain types of trading venues can be more suited to specific classes of investors. Investors may further select to trade on venues that minimize undesiredRead More →

By Irene Aldridge   Big Data is the new Big Bang. It is a buzzword that has exploded into every discipline that process expansive data sets. Computing, medical sciences, biology, and advertising are adjusting their methodologies to harness the ever expanding processing power that is available. In finance, the data is omnipresent: exchanges generate tick data, news services deliver real-time machine readable newsfeeds, and Internet traffic analysts produce sentiment feeds. Even the United States Federal Reserve has seemingly jumped on the big data wagon and is producing more data points than ever before. All of this is a great thing. Big data generates transparency, itRead More →

By Irene Aldridge As a high-frequency trader I often weigh the risks of HFT. Some of these considerations are generated by the obvious desire to contain the risks of my operation and thereby enhance profitability and attractiveness to prospective partners and investors. Alternative concepts are driven by the proposals of third-parties, who are often individuals that view HFT as a threat. In this note I explore the real and the imagined risks from the impact of HFT — specifically and externally. As I discuss in my new book, High-Frequency Trading: A Practical Guide to Algorithmic Strategies and Trading Systems, 2nd Edition (Wiley, ISBN: 978-1118343500), mostRead More →

By Irene Aldridge It’s not a secret that many pension fund, mutual fund and hedge fund managers are concerned about high-frequency traders (HFTs). While their concerns are many, perhaps the biggest uncertainty involves the actual extent of HFT participation in the markets, their identities and their intent. While some claim that HFTs comprise 60-70% of all market participants, such numbers are seldom reached in reality. Scientific examinations find that HFTs still account for as little as 25% of all market activity in such frequently traded instruments as the S&P 500 E-mini futures (see Kirilenko et al., 2011). As Figure 1 shows, even in the veryRead More →