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The adaptive market hypothesis and high frequency trading
- Source :
- PLoS ONE, Vol 16, Iss 12, p e0260724 (2021), PLoS ONE
- Publication Year :
- 2021
- Publisher :
- Public Library of Science (PLoS), 2021.
-
Abstract
- This paper uses NASDAQ order book data for the S&P 500 exchange traded fund (SPY) to examine the relationship between one-minute, informational market efficiency and high frequency trading (HFT). We find that the level of efficiency varies widely over time and appears to cluster. Periods of high efficiency are followed by periods of low efficiency and vice versa. Further, we find that HFT activity is higher during periods of low efficiency. This supports the argument that HFTs seek profits and risk reduction by actively processing information, through limit order additions and cancellations, during periods of lower efficiency and revert to more passive market-making and rebate-generation during periods of higher efficiency. These findings support the argument that the adaptive market hypothesis (AMH) is an appropriate description of how prices evolve to incorporate information.
- Subjects :
- Economics
Science
Test Statistics
Normal Distribution
Social Sciences
Efficiency
Research and Analysis Methods
Time Measurement
Mathematical and Statistical Techniques
Humans
Statistical Methods
Investments
Financial Markets
Statistical Data
Measurement
Multidisciplinary
Mathematical Models
Statistics
Commerce
Probability Theory
Probability Distribution
Random Walk
Physical Sciences
Engineering and Technology
Medicine
Mathematics
Models, Econometric
Research Article
Statistical Distributions
Subjects
Details
- ISSN :
- 19326203
- Volume :
- 16
- Database :
- OpenAIRE
- Journal :
- PLOS ONE
- Accession number :
- edsair.doi.dedup.....c06564b53104717d18a15963d974e490