Can High‐frequency Trading Strategies Constantly Beat the Market?. (25th November 2015)

• Record Type: Journal Article
• Authors: Manahov, Viktor
• Is Part Of: International journal of finance & economics. Volume 21:Number 2(2016:Apr.)
• Page Start: 167
• Page End: 191
• Publication Date: 2015-11-25
• Subjects: high‐frequency trading -- algorithmic trading -- forecasting and simulation -- forecasting methods -- market regulation; International finance -- Periodicals; Economics -- Periodicals; 332
• DOI: 10.1002/ijfe.1541
• Languages: English
• ISSNs: 1076-9307

Abstract

Abstract: Policymakers are still debating whether or not high‐frequency trading (HFT) is beneficial or harmful to financial markets. We develop four artificial stock markets populated with HFT scalpers and aggressive high‐frequency traders using Strongly Typed Genetic Programming trading algorithm. We simulate real‐life HFT by applying Strongly Typed Genetic Programming to real‐time millisecond data of Apple, Bank of America, Russell 1000 and Russell 2000 and observe that HFT scalpers front‐run the order flow generating persistent profits. We also use combinations of forecasting techniques as benchmarks to demonstrate that HFT scalping strategies anticipate the trading order flow and constantly beat the market. Copyright © 2015 John Wiley & Sons, Ltd.