Enhancing Automated Trading Engines To Cope With News-Related Liquidity Shocks
نویسنده
چکیده
Liquidity constitutes one of the main determinants of implicit transaction costs. Deriving optimal execution strategies that minimize transaction costs, automated trading engines need to forecast future liquidity levels. By means of an empirical study we provide evidence that the publication of regulatory corporate disclosures is followed by abnormal liquidity levels. As we do not find abnormal liquidity levels prior to the publication, we assume the content to be largely unanticipated. Forecasting models purely based on quantitative input data may therefore not be able to pick up on the liquidity trends in a timely manner. Against this background, we propose two trading signals that allow automated trading engines to appropriately react to news-related liquidity shocks: First, a simple binary “news” or “no news” signal. Second, a signal that indicates whether or not the publication of a regulatory corporate disclosure will be followed by a negative liquidity shock. Utilizing text mining techniques, the content of the corporate disclosures is analyzed to extract the trading signal. The trading signals are evaluated within a simulation-based use case and turn out to be valuable. We strongly advise developers of automated trading engines to integrate unstructured qualitative data into their models, i.e. the proposed trading signals.
منابع مشابه
Glued to the TV: Distracted Retail Investors and Stock Market Liquidity
We investigate how distraction affects the trading behavior of retail investors, and ultimately market liquidity. Exploiting episodes of sensational news exogenous to the stock market, we first document that investors stop trading altogether when they are distracted. We report further that these effects are more pronounced for more overconfident–i.e., single-male and active–investors, who are t...
متن کاملGlued to the TV: The Trading Activity of Distracted Investors
We investigate how distraction affects the trading behavior of retail investors, and ultimately market liquidity. Exploiting episodes of sensational news exogenous to the stock market, we first document that investors stop trading altogether when they are distracted. We report further that these effects are more pronounced for more overconfident–i.e., single-male and active–investors, who are t...
متن کاملInsider trading in credit derivatives
Insider trading in the credit derivatives market has become a significant concern for regulators and participants. This paper attempts to quantify the problem. Using news reflected in the stock market as a benchmark for public information, we find significant incremental information revelation in the credit default swap market under circumstances consistent with the use of non-public informatio...
متن کاملFrom minutes to seconds and beyond: measuring order-book resiliency in fragmented electronic securities markets
This study sheds light on the resiliency of competing electronic order-driven markets by investigating the time path of liquidity after a large endogenous shock by means of an intra-day event study. We confirm earlier results that large trades, which qualify as shocks for the purpose of this analysis, are timed as they occur when liquidity in the market is extraordinarily high. Moreover, we fin...
متن کاملAnatomy of a Market Failure: NYSE Trading Suspensions
A cross-sectional analysis of all trading suspensions that occurred during the period 1974-1988 in the New York Stock Exchange reveals that though the desire to maintain price continuity remains an important motivation to suspend trade, inventory imbalance fears are pronounced for large firms. Adverse selection concerns afflict all news related suspensions irrespective of firm size. Further, we...
متن کاملذخیره در منابع من
با ذخیره ی این منبع در منابع من، دسترسی به آن را برای استفاده های بعدی آسان تر کنید
عنوان ژورنال:
دوره شماره
صفحات -
تاریخ انتشار 2010