Dataset Information

High-frequency trading and networked markets.

ABSTRACT: Financial markets have undergone a deep reorganization during the last 20 y. A mixture of technological innovation and regulatory constraints has promoted the diffusion of market fragmentation and high-frequency trading. The new stock market has changed the traditional ecology of market participants and market professionals, and financial markets have evolved into complex sociotechnical institutions characterized by a great heterogeneity in the time scales of market members' interactions that cover more than eight orders of magnitude. We analyze three different datasets for two highly studied market venues recorded in 2004 to 2006, 2010 to 2011, and 2018. Using methods of complex network theory, we show that transactions between specific couples of market members are systematically and persistently overexpressed or underexpressed. Contemporary stock markets are therefore networked markets where liquidity provision of market members has statistically detectable preferences or avoidances with respect to some market members over time with a degree of persistence that can cover several months. We show a sizable increase in both the number and persistence of networked relationships between market members in most recent years and how technological and regulatory innovations affect the networked nature of the markets. Our study also shows that the portfolio of strategic trading decisions of high-frequency traders has evolved over the years, adding to the liquidity provision other market activities that consume market liquidity.

SUBMITTER: Musciotto F

PROVIDER: S-EPMC8255954 | biostudies-literature |

REPOSITORIES: biostudies-literature

ACCESS DATA

Similar Datasets

Project description:This paper introduces a new trading strategy in investment: including the asset (Asset A) with the highest mean, the asset (Asset B) that stochastically dominates many other assets, and the asset (Asset C) with the smallest standard deviation in their portfolio to form portfolios in the efficient frontier for emerging and developed markets that could get higher expected utility and/or expected arbitrage opportunities. To test whether our proposed new trading strategy performs better, we set a few conjectures including the conjectures that investors should include any one, two, or three of Assets A, B, and C from emerging and developed markets. We test whether the conjectures hold by employing both mean-variance and stochastic dominance (SD) approaches to examine the performance of the portfolio formed by using hedge funds from emerging and developed markets with and without Assets A, B, and C, the naïve 1/N portfolio, and all other assets studied in our paper. We find that most of the portfolios with assets A, B, and C++ stochastically dominate the corresponding portfolio without any one, two, or all three of the A, B, and C strategies and dominate most, if not all, of the individual assets and the naïve 1/N portfolio in the emerging and developed markets, implying the existence of expected arbitrage opportunities in either emerging or developed markets and the market is inefficient. In addition, in this paper, we set a conjecture that combinations of portfolios with no arbitrage opportunity could generate portfolios that could have expected arbitrage opportunity. Our findings conclude that the conjecture holds and we claim that this phenomenon is a new anomaly in the financial market and our paper discovers a new anomaly in the financial market that expected arbitrage opportunity could be generated. We also conduct an out-of-sample analysis to check whether our proposed approach will work well in the out-of-sample period. Our findings also confirm our proposed new trading strategy to include Assets A, B, and C in the portfolio is the best strategy among all the other strategies used in our paper and gets the highest expected wealth and the highest expected utility for the emerging and developed markets. Our findings contribute to the literature on the emerging and developed markets of hedge funds and the reliability of alternative risk frameworks in the evaluation. Our findings also provide practical experience to academics, fund managers, and investors on how to choose assets in their portfolio to get significantly higher expected utility in emerging and developed markets.

Dataset Information

High-frequency trading and networked markets.

Similar Datasets

OmicsDI is part of the ELIXIR infrastructure

Tweets