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                   Department of Systems Engineering and Engineering Management

                             The Chinese University of Hong Kong

 

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Title:  High frequency trading and learning

 

 

Speaker:  Xuezhong (Tony) He, Professor of Finance, University of Technology Sydney

 

 

Abstract:

This research examines the effect of high frequency trading (HFT) and learning on limit order markets by introducing a dynamic limit order market model of fast and slow traders with learning. We show that the profitability of HFT mainly comes from learning and information advantage, while there is a trade-off between the trading speed and profit opportunity and a high trading speed does not necessarily generate high profit. HFT affects order submission behavior of traders, increasing liquidity consumption and reducing liquidity supply. It improves market information efficiency and hence price discovery. It also increases the bid-ask spread, order book depth, trading volume, and volatility, generating significant event clustering effect in order flows. In addition, the trading speed has an invert U-shaped relation to HFT profit, market information efficiency, and liquidity consumption. The results provide some insight into the profitability of HFT and the current debates and puzzles about HFT.

 

Bio:

Tony He has been a Professor in Finance at University of Technology Sydney (UTS) since 2010. He has been a co-editor of Journal of Economic Dynamics and Control since 2013.

Tony is an internationally recognized expert in financial market modelling and nonlinear dynamics in finance and economics. His research interests cover a broad area of theoretical asset pricing and financial market modelling with heterogeneous beliefs, adaptive learning, and social interaction, and empirical testing on various financial market anomalies and stylized facts such as volatility clustering, profitability of optimal trading, and return predictability. His international research profile is attested by his more than 40 publications in the field of finance and economics, invited contributions to the prestigious Handbook of Financial Markets and Handbook of Computational Economics, numerous keynote talks in the international conferences, and a number of competitively national and international research grants. He has also served as associate editor and reviewer of a number of journals in finance, economics and mathematics.

 

 

This seminar is hosted by Prof. Duan Li.

 

 

Venue: Room 513,

      William M.W. Mong Engineering Building (ERB),

      (Engineering Building Complex Phase 2)

      The Chinese University of Hong Kong.