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Can High‐frequency Trading Strategies Constantly Beat the Market?

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  • Viktor Manahov

Abstract

Policymakers are still debating whether or not high‐frequency trading (HFT) is beneficial or harmful to financial markets. We develop four artificial stock markets populated with HFT scalpers and aggressive high‐frequency traders using Strongly Typed Genetic Programming trading algorithm. We simulate real‐life HFT by applying Strongly Typed Genetic Programming to real‐time millisecond data of Apple, Bank of America, Russell 1000 and Russell 2000 and observe that HFT scalpers front‐run the order flow generating persistent profits. We also use combinations of forecasting techniques as benchmarks to demonstrate that HFT scalping strategies anticipate the trading order flow and constantly beat the market. Copyright © 2015 John Wiley & Sons, Ltd.

Suggested Citation

  • Viktor Manahov, 2016. "Can High‐frequency Trading Strategies Constantly Beat the Market?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 21(2), pages 167-191, April.
    • Handle: RePEc:wly:ijfiec:v:21:y:2016:i:2:p:167-191
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    Cited by:

    1. Subrata K. Mitra & Abhishek Rohit, 2020. "Momentum Trading with the ℓ1‐Filter: Are the Markets Efficient?," International Review of Finance, International Review of Finance Ltd., vol. 20(4), pages 827-856, December.
    2. Adrian Zoicas‐Ienciu, 2021. "Evaluating active investing with generic trading reactions," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 1018-1036, January.

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