Modeling Asset Prices for Algorithmic and High Frequency Trading

Asset Pricing Program Review: Liquidity, Trading and Asset Prices

NBER Asset Pricing Program members write 90 working papers in a typical year, and 18 papers per year are presented in the program meetings and summer institute. These papers are spread over an astonishing range of topic areas. Naming the papers written in the four and a half years since the last program report, let alone providing any sort of intelligible summary of their contents, would quickl...

Crashes and high frequency trading: an evaluation of risks posed by high-speed algorithmic trading

High Frequency Jump Characteristics of Financial Asset Prices

There is evidence that the conventional, continuous underlying function model of financial asset pricing can be improved by adding a discontinuous jump component. Barndorff-Nielsen and Shephard (2004) propose a method of detecting these jumps that compares different estimators of quadratic variation. This paper applies that detection method to the common stock of Altria Group, Inc. and attempts...

Nickels versus Black Swans: Reputation, Trading Strategies and Asset Prices

This paper analyzes a model of fund managers’ reputation concerns. It explains why “Nickel strategies” (strategies that earn small positive returns most of the time but occasionally lead to dramatic losses) are more popular among managers than the opposite “Black Swan strategies,” (strategies that generate small losses most of the time but occasionally lead to large profits). A novel insight fr...

Dynamic Trading and Asset Prices: Keynes vs. Hayek

We investigate the dynamics of prices, information and expectations in a competitive, noisy, dynamic asset pricing equilibrium model with long-term investors. We argue that the fact that prices can score worse or better than consensus opinion in predicting the fundamentals is a product of endogenous short-term speculation. For a given, positive level of residual payoff uncertainty, if noise tra...