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New Revealing paper on High Frequency Trading

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Re: New Revealing paper on High Frequency Trading

#21

Post by yummyfajitas »

msy wrote: post #18

At least in the abstract this study doesn't seem to differentiate between market making and more agressive HTF strategies, furthermore the firms involved and strategies they are running aren't listed. The potential bias in both these factors is enormous. Given there is significant empirical evidence that at least some HFT strategies have involved market manipulation and in one notable example, the temporary total des…

Given there is significant empirical evidence that at least some HFT strategies have involved market manipulation and in one notable example, the temporary total destabilisation of the entire market...

[citation (or even a few google keywords) needed]

Re: New Revealing paper on High Frequency Trading

#22

Post by Ennis »

lzw wrote: post #16
Eliezer wrote: post #5

Scientific papers about politically controversial topics that involve billions of dollars of money flowing around in firms that can potentially hire the author later, need to be taken with a grain of salt. A large grain of salt. Sad but true. You can't trust science papers about politically controversial, money-impregnated topics the way you can almost sorta sometimes trust science papers about completely noncontrove…

These conclusions, however, are also consistent with about 70 or more years of economics investigation by members of the austrian school. In fact, is whole economic cycle, that ended in 2008 was predicted by austrians in specific in 2001 and in general as far back as the 1920s. So, this isn't just some single paper with an unexpected conclusion. It is important also because it supports an understanding of economics t…

I agree that the austrian school has more merit than it's been given but that brand of economists has been spelling doom for many years. It's not out of this world for them to be right at some point. But they are often not right (like on deflation being a good thing.)

Re: New Revealing paper on High Frequency Trading

#23

Post by VengefulCynic »

Let's assume for a second that the author is correct and that correctly-executed HFT systems are generally a non-issue. Even with that core assumption, there is still the significant question as to what happens HFT systems misbehave (either due to suboptimal algorithms, bugs or a lack of adhering to stock trading good practices), which is the allegation that NANEX makes (http://www.nanex.net/20100506/FlashCrashAnalysis_Intro.html).

Obviously, that isn't the subject matter that this paper is covering, but it definitely seems to be making an attempt to paint HFT as a Force for Good in the marketplace (or at least dispel attempts to paint it as a Bad Thing), and in my mind as a software developer, even more than impacts when things are Working As Intended, the bugs are what scare me.

Re: New Revealing paper on High Frequency Trading

#24

Post by elecengin »

The author makes use of a dataset of trades from major exchanges annotated with which parties were "HFT". Besides the definition of "HFT" being very unclear, deciding if a trade was executed by an HFT firm (even by what he defines as a HFT trader) is very hard to determine.

The author utilizes the Market Participant ID (MPID) to try to determine the underlying firm for a trade, but this is not reliable. It is very common for many many firms to share a single MPID for "tier aggregation" since fees are calculated by MPID and the fees exchanges charge improve with higher volume. This means that many firms (HFT and not) can share a single identifier. Also, many large banks have a single MPID for all their flow, which may include HFT proprietary trading as well as non-HFT flow. He notes these flaws, but I am not sure he realizes how pervasive these arrangements are in the marketplace.

Even if he was able to determine the underlying firm for each trade, there is no rolodex of HFT traders. The author makes a valiant attempt using firm websites and such, but this process is somewhat error prone.

Re: New Revealing paper on High Frequency Trading

#25

Post by lzw »

Ennis wrote: post #22
lzw wrote: post #16

Earlier quoted context omitted.

These conclusions, however, are also consistent with about 70 or more years of economics investigation by members of the austrian school. In fact, is whole economic cycle, that ended in 2008 was predicted by austrians in specific in 2001 and in general as far back as the 1920s. So, this isn't just some single paper with an unexpected conclusion. It is important also because it supports an understanding of economics t…

I agree that the austrian school has more merit than it's been given but that brand of economists has been spelling doom for many years. It's not out of this world for them to be right at some point. But they are often not right (like on deflation being a good thing.)

So, you think tibias a bad thing for peoples purchasing power to go up, and for there to consequently be fewer people at or below the poverty line? And for those above the poverty line to have more disposable income to invest in long term or short term needs is also a bad thing?

Yet, somehow, the opposite, where everyone is poorer and a lot of preventative maintenance is avoided because it simply can't be afforded, is somehow better?

Re: New Revealing paper on High Frequency Trading

#26

Post by jbarham »

yummyfajitas wrote: post #21
msy wrote: post #18

At least in the abstract this study doesn't seem to differentiate between market making and more agressive HTF strategies, furthermore the firms involved and strategies they are running aren't listed. The potential bias in both these factors is enormous. Given there is significant empirical evidence that at least some HFT strategies have involved market manipulation and in one notable example, the temporary total des…

Given there is significant empirical evidence that at least some HFT strategies have involved market manipulation and in one notable example, the temporary total destabilisation of the entire market... [citation (or even a few google keywords) needed]

Try these keywords: "flash crash" HFT

Re: New Revealing paper on High Frequency Trading

#27

Post by yummyfajitas »

jbarham wrote: post #26
yummyfajitas wrote: post #21

Earlier quoted context omitted.

Given there is significant empirical evidence that at least some HFT strategies have involved market manipulation and in one notable example, the temporary total destabilisation of the entire market... [citation (or even a few google keywords) needed]

Try these keywords: "flash crash" HFT

The first page of google results provides no empirical evidence that either HFT involves market manipulation or that HFT caused the flash crash. All it provides is speculation.

Re: New Revealing paper on High Frequency Trading

#29

Post by sigil »

yummyfajitas wrote: post #17
lzw wrote: post #16

Earlier quoted context omitted.

These conclusions, however, are also consistent with about 70 or more years of economics investigation by members of the austrian school. In fact, is whole economic cycle, that ended in 2008 was predicted by austrians in specific in 2001 and in general as far back as the 1920s. So, this isn't just some single paper with an unexpected conclusion. It is important also because it supports an understanding of economics t…

...is whole economic cycle, that ended in 2008 was predicted by austrians in specific in 2001... [Citation needed.]

I'm not sure what 2001 prediction lzw could be referring to, but the Austrian school definitely sounded an early warning on the housing bubble. See this article from 2004 for instance: http://mises.org/daily/1533

Or, Ron Paul addressing the House in July 2002: http://www.ronpaul.com/2008-09-26/ron-paul-on-the-housing-bu...

Re: New Revealing paper on High Frequency Trading

#30

Post by msy »

yummyfajitas wrote: post #27
jbarham wrote: post #26

Earlier quoted context omitted.

Try these keywords: "flash crash" HFT

The first page of google results provides no empirical evidence that either HFT involves market manipulation or that HFT caused the flash crash. All it provides is speculation.

Ask and ye shall receive. http://www.zerohedge.com/article/its-not-market-its-hft-crop...

If detailed, fully sourced graphs, demonstrating deliberate use of quote stuffing to essentially jam markets isn't good enough for you I suggest you consider carefully your own bias.

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