Submitted by Tyler Durden on 08/17/2011 - 21:34
Lately, readers have sent us links to a few research papers extolling the virtues of HFT, namely, that they provide liquidity, reduce spreads, and probably cure cancer. At first, it appeared that some of these papers were written based on data from another planet, but, upon closer inspection, we realized that they were simply based on very old data. You see, as HFT races towards zero, the data it generates decays just as fast. In other words, any research paper written just 6 months ago, or one that does not take into account recent data, might as well have been written for people on another planet, because it won't accurately describe what is going on in the market today. Take a look at the images below, which show just how much, and how quickly trading has change since 2007. We plot U.S. equity quote and trade data for each minute of the trading day, from the beginning of 2007 through August 16, 2011 (about 1165 trading days). Note the significant changes from late 2009 (light green to aqua-marine). That was a year that many Pro-HFT research papers are based on. If the research paper predates 2011, or worse, ignores recent data, it's probably not worth the paper it's printed on.
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http://www.zerohedge.com/news/out-control-explosion-equity-quote-rates-or-why-any-and-all-hft-research-already-obsolete
Realist - Everybody in America is soft, and hates conflict. The cure for this, both in politics and social life, is the same -- hardihood. Give them raw truth.
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