High-Frequency Technical Trading: The Importance of Speed
Martin L. Scholtus
Erasmus University Rotterdam - Erasmus School of Economics - Econometric Institute; Tinbergen Institute
Dick J. C. Van Dijk
Erasmus University Rotterdam - Erasmus School of Economics - Econometric Institute; ERIM
February 28, 2012
Tinbergen Institute Discussion Paper 12-018/4
This paper investigates the importance of speed for technical trading rule performance for three highly liquid ETFs listed on NASDAQ over the period January 6, 2009 up to September 30, 2009. In addition we examine the characteristics of market activity over the day and within subperiods corresponding to hours, minutes, and seconds. Speed has a clear impact on the return of technical trading rules. For strategies that yield a positive return when they experience no delay, a delay of 200 milliseconds is enough to lower performance significantly. On low volatility days this is already the case for delays larger than 50 milliseconds. In addition, the importance of speed for trading rule performance increases over time. Market activity follows a U-shape over the day with a spike at 10:00AM due to macroeconomic announcements and is characterized by periodic activity within the day, hour, minute, and second.
Number of Pages in PDF File: 63
Keywords: technical trading, high-frequency trading, latency costs, trading speed, market activity
JEL Classification: G10, G14, G20working papers series
Date posted: March 2, 2012
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