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Studies on high frequency financial markets

Studies on high frequency financial markets
Studies on high frequency financial markets
This thesis examines high frequency financial markets in terms of the relationship among financial instruments. Chapter 2 paves the way for subsequent chapters by providing a detailed delineation of high frequency markets, the main context of this work, and discussing various topics such as the significance and popularity of high frequency trading (HFT) as well as its positive and negative impacts on today’s markets. Chapter 3, 4 and 5 are three research papers which focus on multiple aspects of the high frequency relationship among financial assets including correlation, lead-lag effects and volatility transmission. Specifically, chapter 3 studies pairs trading, a popular trading strategy based on correlation and designed to exploit related securities. Among other things, this chapter explains why the literature may have consistently underestimated the level of pairs trading profitability and market inefficiency, and then proposes a new trading rule to correct this bias which outperforms the standard rule used by previous papers. On the other hand, chapter 4 analyses the lead-lag relationship between instruments and identifies an important factor that has an impact on this relationship, namely the rate of information arrival. This chapter has been accepted for publication in Quantitative Finance. Finally, chapter 5 investigates the influence of the Brexit referendum, an important political event, on currency markets. This chapter shows that the event has affected the correlation and volatility spillover among exchange rates in a way that suggests a flight to quality and is consistent with the reduced market integration between the UK and the EU due to the UK’s decision to leave the EU.
University of Southampton
Dao, Thong Minh
f3e73ed8-7d99-4f3e-96c2-c966e10541cf
Dao, Thong Minh
f3e73ed8-7d99-4f3e-96c2-c966e10541cf
Mcgroarty, Francis
693a5396-8e01-4d68-8973-d74184c03072

Dao, Thong Minh (2019) Studies on high frequency financial markets. University of Southampton, Doctoral Thesis, 176pp.

Record type: Thesis (Doctoral)

Abstract

This thesis examines high frequency financial markets in terms of the relationship among financial instruments. Chapter 2 paves the way for subsequent chapters by providing a detailed delineation of high frequency markets, the main context of this work, and discussing various topics such as the significance and popularity of high frequency trading (HFT) as well as its positive and negative impacts on today’s markets. Chapter 3, 4 and 5 are three research papers which focus on multiple aspects of the high frequency relationship among financial assets including correlation, lead-lag effects and volatility transmission. Specifically, chapter 3 studies pairs trading, a popular trading strategy based on correlation and designed to exploit related securities. Among other things, this chapter explains why the literature may have consistently underestimated the level of pairs trading profitability and market inefficiency, and then proposes a new trading rule to correct this bias which outperforms the standard rule used by previous papers. On the other hand, chapter 4 analyses the lead-lag relationship between instruments and identifies an important factor that has an impact on this relationship, namely the rate of information arrival. This chapter has been accepted for publication in Quantitative Finance. Finally, chapter 5 investigates the influence of the Brexit referendum, an important political event, on currency markets. This chapter shows that the event has affected the correlation and volatility spillover among exchange rates in a way that suggests a flight to quality and is consistent with the reduced market integration between the UK and the EU due to the UK’s decision to leave the EU.

Text
Thong DAO electronic thesis - Version of Record
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Published date: March 2019

Identifiers

Local EPrints ID: 433125
URI: http://eprints.soton.ac.uk/id/eprint/433125
PURE UUID: 8bb18969-9269-4532-9474-fca7d435e853
ORCID for Francis Mcgroarty: ORCID iD orcid.org/0000-0003-2962-0927

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Date deposited: 08 Aug 2019 16:30
Last modified: 09 Aug 2019 00:36

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