The Volume Clock: Insights into the High Frequency Paradigm
Cornell University - Department of Economics
Marcos Lopez de Prado
Guggenheim Partners, LLC; Lawrence Berkeley National Laboratory; Harvard University - RCC
Cornell 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
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: G10Accepted Paper Series
Date posted: April 5, 2012 ; Last revised: August 20, 2012
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