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 on
By Irene Aldridge High frequency trading has been taking Wall Street by storm. While no institution thoroughly tracks performance of high-frequency funds as of the date this article is written, colloquial evidence suggests that the majority of high-frequency managers delivered positive returns through the most recent financial crises. The discourse on what is the profitability of high-frequency trading strategies always runs into the question of availability of performance data on returns realized at different frequencies. Hard data on performance of high-frequency strategies is indeed hard to find. Hedge funds successfully running high-frequency strategies tend to shun the public limelight. Others produce data from questionable sources.