The Volume Clock: Insights into the High Frequency Paradigm

The Journal of Portfolio Management, (Fall, 2012)

Johnson School Research Paper Series No. 9-2012

23 Pages Posted: 21 May 2019 Last revised: 30 May 2019

See all articles by David Easley

David Easley

Cornell University - Department of Economics; Cornell University - Department of Information Science

Marcos Lopez de Prado

Cornell University - Operations Research & Industrial Engineering; AQR Capital Management, LLC

Maureen O'Hara

Cornell University - Samuel Curtis Johnson Graduate School of Management

Date Written: May 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.

Keywords: high frequency trading, volume clock, low frequency trading, market microstructure

JEL Classification: G10

Suggested Citation

Easley, David and López de Prado, Marcos and O'Hara, Maureen, The Volume Clock: Insights into the High Frequency Paradigm (May 2012). The Journal of Portfolio Management, (Fall, 2012) ; Johnson School Research Paper Series No. 9-2012. Available at SSRN: https://ssrn.com/abstract=2034858 or http://dx.doi.org/10.2139/ssrn.2034858

David Easley (Contact Author)

Cornell University - Department of Economics ( email )

414 Uris Hall
Ithaca, NY 14853-7601
United States
607-255-6283 (Phone)
607-255-2818 (Fax)

Cornell University - Department of Information Science ( email )

402 Bill & Melinda Gates Hall
Ithaca, NY 14853
United States

Marcos López de Prado

Cornell University - Operations Research & Industrial Engineering ( email )

237 Rhodes Hall
Ithaca, NY 14853
United States

HOME PAGE: http://www.orie.cornell.edu

AQR Capital Management, LLC

One Greenwich Plaza
Greenwich, CT 06830
United States

HOME PAGE: http://www.aqr.com

Maureen O'Hara

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States
607-255-3645 (Phone)
607-255-5993 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
10,159
Abstract Views
38,306
rank
414
PlumX Metrics