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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.


Papers
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Journal ArticleDOI
TL;DR: In this paper, the authors test whether momentum-based strategies remain profitable after considering market frictions, in particular price concessions induced by trading, and find that, after taking into account the price impact induced by trades, as much as 5 billion dollars (relative to December 1999 market capitalization) may be invested in some momentum based strategies before the apparent profit opportunities vanish.
Abstract: This paper tests whether momentum-based strategies remain profitable after considering market frictions, in particular price concessions induced by trading. Alternative measures of price impact are estimated and applied to alternative momentum-based trading rules. The performance of traditional momentum strategies, in addition to strategies designed to reduce the cost of trades, is evaluated. We find that, after taking into account the price impact induced by trades, as much as 5 billion dollars (relative to December 1999 market capitalization) may be invested in some momentum-based strategies before the apparent profit opportunities vanish. Other, extensively studied, momentum strategies are not implementable on a large scale. The persistence of momentum returns exhibited in the data remains an important challenge to the asset-pricing literature.

82 citations

Journal ArticleDOI
TL;DR: In this article, the impact of trading in KOSPI 200 futures on the spot market was investigated and it was shown that futures trading increases the speed at which information is impounded into spot market prices, reduces the persistence of information and increases spot market volatility.
Abstract: This article investigates the impact on the spot market of trading in KOSPI 200 futures. Empirical results show that futures trading increases the speed at which information is impounded into spot market prices, reduces the persistence of information and increases spot market volatility. The spot and futures prices are cointegrated and there is bidirectional causality between the two markets. The lead-lag relation is asymmetric with weaker evidence that the spot index leads futures and stronger evidence that the stock index futures market leads the spot market.

82 citations

Journal ArticleDOI
TL;DR: The authors studied stock returns and trading volume surrounding the crash of the space shuttle Challenger and found that price discovery occurred without large trading profits and that much of the price discovery happened during a trading halt of the firm responsible for the faulty component.

82 citations

Journal ArticleDOI
TL;DR: In this paper, the authors use a detailed data set from a large investor in the US equity markets to find evidence that competition from crossing networks is concentrated in the most liquid stocks in a sample of the largest companies in the United States.
Abstract: The trading volume channeled through off-market crossing networks is growing. Passive matching of orders outside the primary market lowers several components of execution costs compared to regular trading. On the other hand, the risk of non-execution imposes opportunity costs, and the inherent “free riding” on the price discovery process raises concerns that this eventually will lead to lower liquidity in the primary market. Using a detailed data set from a large investor in the US equity markets, we find evidence that competition from crossing networks is concentrated in the most liquid stocks in a sample of the largest companies in the US. Simulations of alternative trading strategies indicate that the investor’s strategy of initially trying to cross all stocks was cost effective: in spite of their high liquidity, the crossed stocks would have been unlikely to achieve at lower execution costs in the open market.

82 citations

Journal ArticleDOI
TL;DR: In this article, a trading strategy combining mean reversion and momentum in foreign exchange markets is proposed, which was originally designed for equity markets, but it also generates abnormal returns when applied to uncovered interest parity deviations for five countries.
Abstract: The literature on equity markets documents the existence of mean reversion and momentum phenomena. Researchers in foreign exchange markets find that foreign exchange rates also display behaviors akin to momentum and mean reversion. This paper implements a trading strategy combining mean reversion and momentum in foreign exchange markets. The strategy was originally designed for equity markets, but it also generates abnormal returns when applied to uncovered interest parity deviations for five countries. I find that the pattern for the positions thus created in the foreign exchange markets is qualitatively similar to that found in the equity markets. Quantitatively, this strategy performs better in foreign exchange markets than in equity markets. Also, it outperforms traditional foreign exchange trading strategies, such as carry trades and moving average rules.

82 citations


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Performance
Metrics
No. of papers in the topic in previous years
YearPapers
202397
2022190
2021144
2020167
2019126
2018160