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The Volume Clock: Insights into the High Frequency ParadigmDavid EasleyCornell University - Department of Economics Marcos Lopez de PradoHess Energy Trading Company; Lawrence Berkeley National Laboratory; RCC at Harvard University Maureen O'HaraCornell University - Samuel Curtis Johnson Graduate School of Management March 30, 2012 The Journal of Portfolio Management, (Fall, 2012) Forthcoming Johnson School Research Paper Series No. 9-2012 Abstract: Over the last two centuries, technological advantages have allowed some traders to be faster than others. We argue that, contrary to popular perception, speed is not the defining characteristic that sets High Frequency Trading (HFT) apart. HFT is the natural evolution of a new trading paradigm that is characterized by strategic decisions made in a volume-clock metric. Even if the speed advantage disappears, HFT will evolve to continue exploiting Low Frequency Trading’s (LFT) structural weaknesses. However, LFT practitioners are not defenseless against HFT players, and we offer options that can help them survive and adapt to this new environment.
Number of Pages in PDF File: 23 Keywords: high frequency trading, volume clock, low frequency trading, market microstructure JEL Classification: G10 Accepted Paper SeriesDate posted: April 5, 2012 ; Last revised: August 20, 2012Suggested CitationContact Information
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