Low-Latency Trading – Paper for quant development and quant analytics
Low-Latency Trading – Paper
http://pages.stern.nyu.edu/~jhasbrou/Research/Working%20Papers/HS10-11-10.pdf
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One important conclusion of this paper is that:
In the current environment, increased low-latency activity improves traditional market quality measures such as short-term volatility, spreads, and displayed depth in the limit order book.
Abstract:
This paper studies market activity in the “millisecond environment,” where computer algorithms respond to each other almost instantaneously. Using order-level NASDAQ data, we find that the millisecond environment consists of activity by some traders who respond to market events (like changes in the limit order book) within roughly 2-3 ms, and others who seem to cycle in wall-clock time. We define low-latency activity as strategies that respond to market events in the millisecond environment, the hallmark of proprietary trading by a new breed of high-frequency trading firms. We construct a measure of low-latency activity by identifying “strategic runs,” which are linked submissions, cancellations, and executions that are likely to be parts of a dynamic strategy. We use this measure to study the impact that low-latency activity has on market quality both during normal market conditions and during a period of declining prices and heightened economic uncertainty. Our conclusion is that in the current environment, increased low-latency activity improves traditional market quality measures such as short-term volatility, spreads, and displayed depth in the limit order book.
Number of Pages in PDF File: 59
Working Paper Series
NOTE I now post my TRADING ALERTS into my personal FACEBOOK ACCOUNT and TWITTER. Don't worry as I don't post stupid cat videos or what I eat!
