Order Anticipation around Predictable Trades

62 Pages Posted: 26 Aug 2016 Last revised: 9 Oct 2018

See all articles by Mehmet Saglam

Mehmet Saglam

University of Cincinnati - Department of Finance - Real Estate

Date Written: August 2018

Abstract

I study the presence of order anticipation strategies by examining predictable patterns in large order trades. I construct three simple signals based on child-order execution patterns and find empirical evidence that stronger signals are correlated with higher execution costs. I use the SEC's ban on unfiltered access and increase in noise trading as shocks to order anticipatory activities of algorithmic traders and show that the price impact of predictability is smaller when order anticipation becomes difficult. The empirical findings are mostly consistent with the back-running theory which predicts delayed price impact as strategic traders learn about the large order gradually.

Keywords: Order Anticipation, Algorithmic Trading, Predatory Trading, Back-Running

JEL Classification: G12, G14

Suggested Citation

Saglam, Mehmet, Order Anticipation around Predictable Trades (August 2018). Available at SSRN: https://ssrn.com/abstract=2828363 or http://dx.doi.org/10.2139/ssrn.2828363

Mehmet Saglam (Contact Author)

University of Cincinnati - Department of Finance - Real Estate ( email )

Carl H. Lindner College of Business
Cincinnati, OH 45221
United States
(513) 556-9108 (Phone)

HOME PAGE: http://homepages.uc.edu/~saglammt/

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