Toggle Main Menu Toggle Search

Open Access padlockePrints

Does high frequency trading affect technical analysis and market efficiency? And if so, how?

Lookup NU author(s): Viktor Manahov, Professor Robert Hudson, Professor Bartosz GebkaORCiD

Downloads

Full text for this publication is not currently held within this repository. Alternative links are provided below where available.


Abstract

In this paper we investigate how high frequency trading affects technical analysis and market efficiency in the foreign exchange (FX) market by using a special adaptive form of the Strongly Typed Genetic Programming (STGP)-based learning algorithm. We use this approach for real one-minute high frequency data of the most traded currency pairs worldwide: EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CHF, and USD/CAD. The STGP performance is compared with that of parametric and non-parametric models and validated by two formal empirical tests. We perform in-sample and out-of-sample comparisons between all models on the basis of forecast performance and investment return. Furthermore, our paper shows the relative strength of these models with respect to the actual trading profit generated by their forecasts. Empirical experiments suggest that the STGP forecasting technique significantly outperforms the traditional econometric models. We find evidence that the excess returns are both statistically and economically significant, even when appropriate transaction costs are taken into account. We also find evidence that HFT has a beneficial role in the price discovery process.


Publication metadata

Author(s): Manahov V, Hudson R, Gebka B

Publication type: Article

Publication status: Published

Journal: Journal of International Financial Markets, Institutions and Money

Year: 2014

Volume: 28

Pages: 131-157

Print publication date: 01/01/2014

Online publication date: 21/11/2013

Acceptance date: 01/01/1900

ISSN (print): 1042-4431

ISSN (electronic): 1873-0612

Publisher: Elsevier

URL: http://dx.doi.org/10.1016/j.intfin.2013.11.002

DOI: 10.1016/j.intfin.2013.11.002


Altmetrics

Altmetrics provided by Altmetric


Share