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Aggressive HFT has long been associated with volatility. Several academic studies hypothesized that higher aggressive HFT participation leads to higher volatility levels, and for good reasons, as explained below. The empirical evidence, however, has been hard to come by, until now. This note explains the empirical relationships between implied volatility of options on stocks comprising the S&P 500 and participation of aggressive HFT, as measured by the AbleMarkets Aggressive HFT Index. As the note shows, two prominent conclusions can be made about the aggressive HFTs in relation to volatility in which the aggressive HFTs are present: 1. Higher aggressive HFT leads to higher implied volatilityRead More →

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If you live in Asia, you will hear this refrain about the Chinese stock market again and again: that it is the government casino. The way the casino works is through guanxi, a set of connections to the higher authority and a network of favors, if not bribes. According to locals, Guanxi permeates pretty much every aspect of the Chinese society. And the Chinese stock market, in particular, has proven to be beholden to Guanxi: those with connections and, as a result, in the know about upcoming government moves make a ton of money. The regular folks are pure gamblers, placing their money on theRead More →

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In the last year or so, stock prices have been moving drastically up and down, a phenomenon known as market volatility. The latest research from AbleMarkets shows that investors can help reduce intraday volatility by collectively expressing their opinions about a stock’s imminent direction on social media. By speaking up online, investors appear to speed up the formation of market consensus and the resulting price adjustment, minimizing price volatility in the process. Social media continuously updates our collective knowledge of financial markets. Investors posting their thoughts online and experiences with a particular publicly-traded firm may encourage others to consider investing into the stock of thatRead More →

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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 →

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By Irene Aldridge Present economic conditions leave much to be desired: Europe is trying to resolve its debt problems, and the U.S. has seen much better times in terms of employment rates and consumer confidence. Against this backdrop of economic calamities, the financial markets are experiencing high volatility, seesawing up and down, gaining and losing in excess of 3% on a given day. Whether the current volatility is without a precedent, however, is up for a debate and depends on how volatility is measured. The most common way to assess volatility is via standard deviation, a square root of the average of squared deviations ofRead More →