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.
|Subjects:||H Social Sciences > HG Finance|
|Divisions:||Faculty of Business and Law > Southampton Business School > Centre for Digital, Interactive & Data Driven Marketing
|Date Deposited:||25 Jul 2012 11:48|
|Last Modified:||27 Mar 2014 20:24|
|RDF:||RDF+N-Triples, RDF+N3, RDF+XML, Browse.|
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