TITLE:
Modelling Intervalling Effect of High Frequency Trading on Portfolio Volatility
AUTHORS:
Ki Hoon Hong
KEYWORDS:
Volatility, Fast Trading, Momentum Trading, Time Series Momentum, Intervalling Effect
JOURNAL NAME:
Theoretical Economics Letters,
Vol.9 No.7,
September
27,
2019
ABSTRACT: 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.