| By: |
Riccardo Cesari (Department of Statistics, University of Bologna, Italy);
Massimiliano Marzo (Department of Economics, University of Bologna, Italy);
Paolo Zagaglia (Department of Economics, University of Bologna, Italy) |
| Abstract: |
This paper examines the role of algorithmic trading in modern financial
markets. Additionally, order types, characteristics, and special features of
algorithmic trading are described under the lens provided by the large
development of high frequency trading technology. Special order types are
examined together with an intuitive description of the implied dynamics of the
order book conditional to special orders (iceberg and hidden). The chapter
provides an analysis of the transaction costs associated with trading activity
and examines the most common trading strategy employed in the market. It also
examines optimal execution strategy with the description of the Efficient
Trading Frontier. These concepts represent the tools needed to understand the
most recent innovations in financial markets and the most recent advances in
microstructures research. |
| Keywords: |
Order book; price impact; execution strategy; high frequency trading |
| JEL: |
G12 G14 G19 |
| Date: |
2012–06 |
| URL: |
http://d.repec.org/n?u=RePEc:rim:rimwps:41_12&r=mst |