High-Frequency Trading and Broader Implications for Strategic Asset Allocation

Posted: 14 Feb 2013

See all articles by Felipe Cersosimo

Felipe Cersosimo

Harvard University - Department of Economics

Date Written: February 13, 2013

Abstract

Radical fluctuations in stock prices result from interactions within a complex self-organizing system of economic agents. Since the financial crisis of 2008, there has been an increased reliance on financial modeling and algorithmic trading in equity portfolio management. Under pressure to maximize absolute returns, attenuate risk and cut costs, asset management firms have begun to look with increasing attention at high-frequency quantitative techniques. Thus the diffusion of quantitative methods in asset allocation has grown exponentially over the past half-decade. Yet drops in overall trading volume have made it harder for the traders who rely on such high-frequency techniques. Moreover, traditional investors have adopted similar algorithmic strategies, a trend which some believe to have levelled the playing field. This paper contributes to the dynamic body of knowledge regarding psychological influences on market fluctuations in order to develop a new understanding of the effects of high-frequency trading and the resultant implications for investment decision making and strategic asset allocation.

Keywords: financial modeling, algorithmic trading, equity portfolio management, strategic asset allocation

JEL Classification: G11, G12

Suggested Citation

Cersosimo, Felipe, High-Frequency Trading and Broader Implications for Strategic Asset Allocation (February 13, 2013). Available at SSRN: https://ssrn.com/abstract=2216950

Felipe Cersosimo (Contact Author)

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States

HOME PAGE: http://people.fas.harvard.edu/~felipecersosimo

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