Intra-Daily Volume Modeling and Prediction for Algorithmic Trading

39 Pages Posted: 24 Apr 2009 Last revised: 19 Feb 2010

See all articles by Christian T. Brownlees

Christian T. Brownlees

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences; Barcelona School of Economics

Fabrizio Cipollini

Universita di Firenze, DiSIA (Dipartimento di Statistica, Informatica, Applicazioni)

Giampiero M. Gallo

Corte dei Conti - Italian Court of Audits; University of Bologna - Rimini Center for Economic Analysis (RCEA); Universita' di Firenze - Dipartimento di Statistica, Informatica, Applicazioni "G.Parenti"

Date Written: February 2010

Abstract

The explosion of algorithmic trading has been one of the most prominent recent trends in the financial industry. Algorithmic trading consists of automated trading strategies that attempt to minimize transaction costs by optimally placing orders. The key ingredient of many of these strategies are intra-daily volume proportions forecasts. This work proposes a dynamic model for intra-daily volumes that captures salient features of the series such as time series dependence, intra-daily periodicity and volume asymmetry. Moreover, we introduce a loss functions for the evaluation of proportions forecasts which retains both an operational and information theoretic interpretation. An empirical application on a set of widely traded index ETFs shows that the proposed methodology is able to significantly outperform common forecasting methods and delivers significantly more precise predictions for Volume Weighted Average Price trading.

Suggested Citation

Brownlees, Christian T. and Cipollini, Fabrizio and Gallo, Giampiero M., Intra-Daily Volume Modeling and Prediction for Algorithmic Trading (February 2010). Available at SSRN: https://ssrn.com/abstract=1393993 or http://dx.doi.org/10.2139/ssrn.1393993

Christian T. Brownlees (Contact Author)

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain

HOME PAGE: http://econ.upf.edu/~cbrownlees/

Barcelona School of Economics ( email )

Carrer de Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

Fabrizio Cipollini

Universita di Firenze, DiSIA (Dipartimento di Statistica, Informatica, Applicazioni) ( email )

Viale Morgagni, 59
Florence, Florence 50134
Italy
+39 055 2751592 (Phone)
+39 055 4223560 (Fax)

Giampiero M. Gallo

Corte dei Conti - Italian Court of Audits ( email )

viale Mazzini
Roma, Roma 00195
Italy

University of Bologna - Rimini Center for Economic Analysis (RCEA) ( email )

Via Patara, 3
Rimini (RN), RN 47900
Italy

Universita' di Firenze - Dipartimento di Statistica, Informatica, Applicazioni "G.Parenti" ( email )

Viale G.B. Morgagni, 59
Florence, 50134
Italy
0039 055 2751 591 (Phone)
0039 055 4223560 (Fax)

HOME PAGE: http://www.disia.unifi.it/gallog

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