Automated Finance: The Assumptions and Behavioral Aspects of Algorithmic Trading

Journal of Behavioral Finance. Vol. 13, No. 1. 2012.

14 Pages Posted: 18 Sep 2013 Last revised: 14 May 2014

See all articles by Andrew Kumiega

Andrew Kumiega

Illinois Institute of Technology - Stuart School of Business

Ben Van Vliet

Illinois Institute of Technology - Stuart School of Business

Date Written: September 17, 2013

Abstract

Automated trading now dominates the financial markets. Yet, no philosophy of academic research into the topic exists. As the growth in automated trading suggests their greater returns and predictability, this paper examines stability and statistical control of trading process outputs as method of justifying predictions of future performance. New assumptions presented can form a foundation for positive research under this revolutionary paradigm, one almost completely ignored in the financial literature. The traditional financial literature rests on the assumption of normality of inputs, while trading systems aspire to the more rigorous engineering standard of justification. The end game is that now behavioral aspects, not of traders, but of trading system research and development projects drive market returns.

Keywords: automated trading, quantitative finance, statistical process control

Suggested Citation

Kumiega, Andrew and Van Vliet, Ben, Automated Finance: The Assumptions and Behavioral Aspects of Algorithmic Trading (September 17, 2013). Journal of Behavioral Finance. Vol. 13, No. 1. 2012., Available at SSRN: https://ssrn.com/abstract=2327251 or http://dx.doi.org/10.2139/ssrn.2327251

Andrew Kumiega

Illinois Institute of Technology - Stuart School of Business ( email )

Stuart Graduate School of Business
565 W. Adams St.
Chicago, IL 60661
United States

Ben Van Vliet (Contact Author)

Illinois Institute of Technology - Stuart School of Business ( email )

Stuart Graduate School of Business
565 W. Adams St.
Chicago, IL 60661
United States

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