Topic
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.
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TL;DR: In this paper, the profitability of a simple and very common technical trading rule applied to the General Index of the Madrid Stock Market was investigated and the optimal trading rule parameter values were found using a genetic algorithm.
Abstract: This paper investigates the profitability of a simple and very common technical trading rule applied to the General Index of the Madrid Stock Market. The optimal trading rule parameter values are found using a genetic algorithm. The results suggest that, for reasonable trading costs, the technical trading rule is always superior to a risk-adjusted buy-and-hold strategy.
38 citations
TL;DR: The authors assess how characteristics of product and forward markets affect levels and volatilities of commodity spot prices and find that increased forward trading leads to lower prices, and that the relationship between trading and price instability is indirect via a common causal factor.
Abstract: We assess how characteristics of product and forward markets affect levels and volatilities of commodity spot prices. We examine (i) how product market structure and forward market trading affect spot market games, (ii) the links between product market structure and spot price stability, (iii) whether forward trading destabilizes spot prices, and (iv) how information arrival affects price volatility and the volume of trade. We find that market structure models of the price level but not of price stability receive support, that increased forward trading leads to lower prices, and that the relationship between trading and price instability is indirect via a common causal factor.
38 citations
TL;DR: In this paper, the authors apply the path dependence approach to clarify the remarkable attitude change of the EU towards emissions trading, and apply this approach to explain why politicians were initially tempted to add credit trading to existing, sub-optimal policy.
Abstract: At the end of the 1990s, the EU was still sceptical towards emissions trading, but in 2003 it adopted a directive that enables such trading in the EU from 2005 onwards. Instead of presenting ad hoc explanations, we develop and apply the path dependence approach to clarify this remarkable attitude change. Sunk costs, switching costs and learning explain why politicians were initially tempted to add credit trading to existing, sub-optimal policy. Permit trading, however, is more efficient and effective. An institutional lock-in was bound to occur, but attitudes changed as a result of internal pressures, such as the pioneering role of the European Commission, and external shocks, such as the withdrawal of the US from the Kyoto Protocol. A full-scale institutional break-out towards efficiency is not guaranteed, though, because elements of credit trading can still enter the permit trading directive. The risk is that these elements become locked in, from which it may be difficult to escape.
38 citations
TL;DR: In this article, the authors investigate the way in which abnormal trading volume reveals new information to market participants and find strong excess returns around extreme trading levels, which are only moderately attributable to information disclosure.
Abstract: This paper investigates the way in which abnormal trading volume reveals new information to market participants. It is generally thought that trading volume is an efficient proxy for information flow and enhances the information set of investors. However, no research has related the presence of abnormal trading volume to firm characteristics, such as ownership and governance structure, which also have a theoretical link to information quality. I find strong excess returns around extreme trading levels, which are only moderately attributable to information disclosure. Moreover, these returns are not caused by liquidity fluctuations since prices do not reverse over the following period. In contrast, there is evidence of price momentum, suggesting that traders can implement successful portfolio strategies based on observation of current volumes.
38 citations
TL;DR: In this paper, a distinction is made between two types of trading, liquidity trading and information trading, and the authors conclude that in both types of markets a competitive market-maker will perform more satisfactorily than a monopolistic market maker and that regulatory criteria are unnecessary.
Abstract: IN ASSESSING the efficiency of a trading market, two criteria are relevant.' First, can transactions take place in the market at relatively low cost? Second, are there opportunities for systematic profit as a result of serial correlation in price series? That is, are there market imperfections which prevent price from fully and immediately reflecting new information? These two criteria are applicable in evaluating a principal agent in organized trading markets-the market maker. They contrast, however, with the methods of evaluation currently used by the New York Stock Exchange and the Securities and Exchange Commission which focus on price continuity and price stabiliy and which may in fact tend to create inefficiency by causing price dependencies.2 This paper examines market-maker behavior. It argues that the chief cost of dealing with a market-maker is the difference between the theoretical but unobservable equilibrium price and the transaction price, rather than the bid-ask spread. A distinction is made between two types of trading, liquidity trading and information trading. The paper concludes that in both types of markets a competitive market-maker will perform more satisfactorily than a monopolistic market maker and that regulatory criteria are unnecessary. Organization follows these lines. Section II provides some background to the study of the market-maker. In Section III, price behavior in a market withough a market maker is discussed. Market-maker behavior in
38 citations