High Frequency Trading Review


    Felipe H. Cersosimo
    Harvard University – Department of Economics

    February 13, 2013

    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.

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

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