IDEAS home Printed from https://ideas.repec.org/p/arx/papers/1007.2593.html
   My bibliography  Save this paper

Empirical Limitations on High Frequency Trading Profitability

Author

Listed:
  • Michael Kearns
  • Alex Kulesza
  • Yuriy Nevmyvaka

Abstract

Addressing the ongoing examination of high-frequency trading practices in financial markets, we report the results of an extensive empirical study estimating the maximum possible profitability of the most aggressive such practices, and arrive at figures that are surprisingly modest. By "aggressive" we mean any trading strategy exclusively employing market orders and relatively short holding periods. Our findings highlight the tension between execution costs and trading horizon confronted by high-frequency traders, and provide a controlled and large-scale empirical perspective on the high-frequency debate that has heretofore been absent. Our study employs a number of novel empirical methods, including the simulation of an "omniscient" high-frequency trader who can see the future and act accordingly.

Suggested Citation

  • Michael Kearns & Alex Kulesza & Yuriy Nevmyvaka, 2010. "Empirical Limitations on High Frequency Trading Profitability," Papers 1007.2593, arXiv.org, revised Sep 2010.
  • Handle: RePEc:arx:papers:1007.2593
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/1007.2593
    File Function: Latest version
    Download Restriction: no

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Rahi, Rohit & Zigrand, Jean-Pierre, 2013. "Market quality and contagion in fragmented markets," LSE Research Online Documents on Economics 60971, London School of Economics and Political Science, LSE Library.
    2. repec:spr:jecfin:v:41:y:2017:i:4:d:10.1007_s12197-016-9374-6 is not listed on IDEAS
    3. J. Doyne Farmer & Spyros Skouras, 2013. "An ecological perspective on the future of computer trading," Quantitative Finance, Taylor & Francis Journals, vol. 13(3), pages 325-346, February.
    4. Manahov, Viktor & Hudson, Robert & Gebka, Bartosz, 2014. "Does high frequency trading affect technical analysis and market efficiency? And if so, how?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 28(C), pages 131-157.
    5. Murray, Hamish & Pham, Thu Phuong & Singh, Harminder, 2016. "Latency reduction and market quality: The case of the Australian Stock Exchange," International Review of Financial Analysis, Elsevier, vol. 46(C), pages 257-265.
    6. Carlos Lenczewski, 2016. "The Role of High-Frequency Traders in the Foreign Exchange Market Bid-Ask Spreads," EUSP Department of Economics Working Paper Series Ec-01/16, European University at St. Petersburg, Department of Economics.
    7. Serbera, Jean-Philippe & Paumard, Pascal, 2016. "The fall of high-frequency trading: A survey of competition and profits," Research in International Business and Finance, Elsevier, vol. 36(C), pages 271-287.
    8. Marouane Anane & Frédéric Abergel, 2014. "Optimal high frequency strategy in an omniscient order book," Working Papers hal-01006401, HAL.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:1007.2593. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators). General contact details of provider: http://arxiv.org/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.