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.
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 Exchange