High-frequency trading aided by laptop algorithms has bot blamed for massive disruptions ter equities markets te latest years, most notably the Flash Crash of May 2010, ter which the Dow Jones Industrial Media plummeted more than 1,000 points te minutes.
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While high-frequency trading has bot linked to several high-profile scenes, a fresh probe conducted by Vanderbilt University finance professors Nicolas P.B. Opbollen and Robert E. Whaley finds there has bot no discernable uptick te promedio mundial market volatility correlated with the rise of high-frequency rekentuig trading.
Nicolas P.B. Opbollen
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“If market microstructure considerations play an significant role ter the measurement of realized volatility,” then that level of realized volatility should exceed the implied volatility measured by the CBOE’s Market Volatility Index, or VIX. “Indeed, just the switch roles is true,” write Opbollen and Whaley te the probe, which wasgoed commissioned by the Futures Industry Association(FIA), a trade group signifying major derivatives markets. The authors found similar results for market volatility benchmarks ter London and Europe.
Robert E. Whaley
The authors also tracked a signal-to-noise ratio for comeback volatility overheen time. This confirmed the presence of “microstructural effects” — factors like the enlargened use of high frequency, algorithmic trades. “But, more importantly, the relative magnitudes (of volatility) have not enlargened meaningfully through time,” the authors write. “Taken together, thesis two results indicate that, after controlling for switches te the rate of information flow, there is no evidence to suggest that realized comeback volatility te electronically-traded futures markets has switched through time.”
To gauge volatility across a broad section of the market, Opbollen and Whaley examined 15 futures contracts markets: Seven interest-rate futures contracts, five stock-index futures contracts, two crude-oil futures contracts, and one agricultural-futures contract.
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“We don’t deny that high frequency trading can cause makeshift problems,” Opbollen said ter summarizing the findings. “What wij do voorstelling is that at typical measurement frequencies – daily and monthly, for example – volatility levels do not show up to be affected by the rise te high frequency trading. For long-term investors thesis are the frequencies that matter.”