Author(s)

Ki Hoon Hong

College of Business Administration, Hongik University, Seoul, South Korea.

This paper theoretically examines whether reducing the minimum trading interval could affect portfolio volatility. Modelling the underlying de-trended asset price with Ornstein Uhlenbeck process, the paper investigates the volatility of portfolios that employ buy and hold strategy and momentum strategy. The paper presents theoretical evidence that the fast trading could increase portfolio price fluctuation and hence potentially suggests another cost of high frequency trading, besides the well-known damages including herding, aggressive trading strategies dark pools, immediate-or-cancel type orders.

Volatility, Fast Trading, Momentum Trading, Time Series Momentum, Intervalling Effect

Hong, K. (2019) Modelling Intervalling Effect of High Frequency Trading on Portfolio Volatility. Theoretical Economics Letters, 9, 2362-2370. doi: 10.4236/tel.2019.97150.