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.

Trading volumes, volatility and spreads in foreign exchange markets : evidence from emerging market countries

Abstract: This paper provides empirical evidence on the relationship between trading volumes, volatility and bid-ask spreads in foreign exchange markets It uses a new data set that includes daily data on trading volumes for the dollar exchange rates of seven currencies from emerging market countries The sample period is 1 January 1998 to 30 June 1999 The results are broadly consistent with the findings of the literature that used futures volumes as proxies for total foreign exchange trading I find that in most cases unexpected trading volumes and volatility are positively correlated, suggesting that both are driven by the arrival of public information, as predicted by the mixture of distributions hypothesis I also find that the correlation between trading volumes and volatility is positive during normal periods but turns negative when volatility increases sharply Finally, the results suggest that volatility and spreads are positively correlated, as suggested by inventory cost models However, contrary to the prediction of these models, I do not find evidence of a significant impact of unexpected trading volumes on spreads

One-Way Arbitrage and Its Implications for the Foreign Exchange Markets

Abstract: The relationship between spot and forward exchange rates and domestic and foreign interest rates is examined with transactions costs in all markets. Market participants choose the least-cost method of exchanging currencies in these markets, thus engaging in one-way arbitrage if that is preferable to a direct transaction. One-way arbitrage consists of using one exchange market and the two securities markets to replace a direct transaction in the other exchange market. It is shown that one-way arbitrage should prevent rates from ever departing enough from interest parity for conventional covered interest arbitrage to break even.

The Penn-Lehman automated trading project

Abstract: The Penn-Lehman automated trading project is a broad investigation of algorithms and strategies for automated trading in financial markets. The PLAT project's centerpiece is the Penn exchange simulator (PXS), a software simulator for automated stock trading that merges automated client orders for shares with real-world, real-time order data. PXS automatically computes client profits and losses, volumes traded, simulator and external prices, and other quantities of interest. To test the effectiveness of PXS and of various trading strategies, we've held three formal competitions between automated clients.

Information transmission in electronic versus open-outcry trading systems: An analysis of U.S. equity index futures markets

Abstract: In this article the intraday price discovery process between regular index futures (floor trading) and E-mini index futures (electronic trading) in the S&P 500 and Nasdaq 100 index futures markets is examined, using intraday data from the introduction of the E-mini index futures to 2001. Using both information shares (Hasbrouck, J., 1995) and common long-memory factor weights (Gonzalo, J., & Granger, C. W. J., 1995) techniques, we find that both E-mini index futures and regular index futures contribute to the price discovery process. However, since September 1998, the contribution made by E-mini index futures has been greater than that provided by regular index futures. Based on regression analysis, we have also found direct empirical evidence to support the hypothesis that the joint effects of operational efficiency and relative liquidity determine the greater contribution made towards price discovery by electronic trading relative to open-outcry trading over time. © 2005 Wiley Periodicals, Inc. Jrl Fut Mark 25: 679–715, 2005