Alsayed, Hamad and McGroarty, Frank
Ultra High Frequency Algorithmic Arbitrage Across International Index Futures
Journal of Forecasting
Full text not available from this repository.
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.
Actions (login required)