Algorithmic trading

About: Algorithmic trading is a research topic. Over the lifetime, 6718 publications have been published within this topic receiving 162209 citations. The topic is also known as: algotrading & Algorithmic trading.

The Cost of Institutional Equity Trades: An Overview

Abstract: This paper examines the empirical evidence on the cost of equity trades for institutional investors. There is considerable practical and academic interest in the measurement and analysis of trading costs. We discuss some of the results that emerge from the recent literature on institutional trading costs and augment those finding with new evidence from a large sample of institutional trades. The evidence we discuss includes: (i) implicit trading costs (such as the price impact of a trade and the opportunity costs of failing to execute) are economically significant relative to explicit costs (and relative to realized portfolio returns); (ii) equity trading costs vary systematically with trade difficulty and order placement strategy; (iii) differences in market design, investment style, trading ability, and reputation are also important determinants of trading costs; (iv) even controlling for trade complexity, there is considerable variation in trading costs across institutions; (v) accurate prediction of trading costs requires more detailed data on the entire order submission process, especially information on pre-trade decision variables such as the trading horizon. We also discuss the implications of equity trading costs for policy makers and investors. For example, the concept of "best execution" is difficult to measure and, therefore, enforce for institutional investors.

Positive feedback trading under stress : evidence from the US Treasury securities market

Abstract: A vector autoregression (VAR) is estimated on tick-by-tick data for quote-changes and signed trades of 2-year, 5-year and 10-year on-the-run US Treasury notes. Confirming the results found by Hasbrouck and others for the stock market, signed order flow tends to exert a strong effect on prices. More interestingly, however, there is often a strong effect in the opposite direction, particularly at times of volatile trading. Price declines elicit sales and price increases elicit purchases. An examination of tick-by-tick trading on an especially volatile day confirms this finding. At least in the US Treasury market, trades and price movements appear likely to exhibit positive feedback at short horizons, particularly during periods of market stress. This suggests that the standard analytical approach to the microstructure of financial markets, which focuses on the ways in which the information possessed by informed traders becomes incorporated into market prices through order flow, should be complemente...

Governance through Trading: Institutional Swing Trades and Subsequent Firm Performance

Abstract: Using unique daily fund manager trade data, we examine the role of institutional trading in influencing firm performance. We show that short-horizon informed trading by multiple institutional investors effectively disciplines corporate management. Our focus is on short-term “swing” trades, sequences with three phases (e.g. buy-sell-buy). We find swing trades increase stock price informativeness, are profitable after costs, and improve market efficiency. This increase in stock price informativeness is associated with subsequent firm outperformance. Trades are most beneficial with optimal stock holdings that reflect the information acquisition incentives of investors as well as liquidity costs.

Method and system for the automated trading of financial instruments

Abstract: In accordance with the present invention, there is provided a method of communicating trade orders in a marketplace for financial instruments through an on-line trading account with a financial institution. The method includes receiving trade trigger criteria and market data for use by market analysis software. The method further includes accessing the market analysis software to generate a trade decision using the trade trigger criteria and the market data. The method further includes automatically communicating a trade order, based upon the trade decision, to the marketplace via the on-line trading account.