Adaptive strategies for high frequency trading教材.pdfVIP

JOURNAL OF STELLAR MSE 444 REPORTS 1 Adaptive Strategies for High Frequency Trading Erik Anderson and Paul Merolla and Alexis Pribula Tock prices on electronic exchanges are determined at each tick by a matching algorithm which matches buyers with Ssellers, who can be thought of as independent agents negotiating over an acceptable purchase or sell price. Exchanges maintain an “order book” which is a list of the bid and ask orders submitted by these independent agents. At each tick, there will be a distribution of bid and ask orders on the order book. Not only will there be a variation in the bid and ask prices, but there will be a variation in the numbers of shares available at each price. For instance at 11:00:00 on February 12, 2008, the order book on the Chicago Mercantile Exchange carried the quotes for the ES contract as shown below: Bid Ask # Bid Shares # Offer Shares 1362 1362.25 81 79 1361.75 1362.5 610 955 1361.50 1362.75 934 1340 1361.25 1363 815 1786 1361 1363.25 1492 1335 The goal of this project was to explore whether the order book is an important source of information for predicting short-term fluctuations of stock returns. Intuitively, one would expect that when the rate and size of buy orders exceeds that of sell orders, the stock price would have a propensity to drift up. Whether this happens or not ultimately depends on how the agents react and update their trading strategies. Our hope is that by considering the order book, we can better predict agent behaviors and their effect on market dynamics, as opposed to a prediction method that did not consider the book. There were