Ultra High Frequency Algorithmic Arbitrage Across International Index Futures

Alsayed, Hamad and McGroarty, Frank (2014) Ultra High Frequency Algorithmic Arbitrage Across International Index Futures. Journal of Forecasting (In Press).


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We show that persistent lead-lag relationships spanning mere fractions of a seccond exist in all three possible pairings of the S&P500, FTSE100, and DAX futures contracts. These relationships exhibit clear intraday patterns which help us to forecast mid-quote changes in lagging contracts with directional accuracy in excess of 85%. A simple algorithmic trading strategy exploiting these relations yields economically significant profits which are robust to market impact costs and the bid-ask spread. We find that price slippage and infrastructure costs are our most important limits to arbitrage. Our results support the Grossman and Stiglitz (1976, 1980) view that informational ine�fficiencies incentivize arbitrageurs to eliminate mispricings.

Item Type: Article
ISSNs: 0277-6693 (print)
1099-131X (electronic)
Related URLs:
Subjects: H Social Sciences > HG Finance
Divisions: Faculty of Business and Law > Southampton Management School > Finance
ePrint ID: 341452
Date Deposited: 25 Jul 2012 11:48
Last Modified: 27 Mar 2014 20:24
URI: http://eprints.soton.ac.uk/id/eprint/341452

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