RT Journal Article
SR Electronic
T1 When the Going Gets Tough, the Algos Get Going
JF The Journal of Trading
FD Institutional Investor Journals
SP 34
OP 45
DO 10.3905/jot.2009.4.2.034
VO 4
IS 2
A1 Mark Gurliacci
A1 David Jeria
A1 George Sofianos
YR 2009
UL https://pm-research.com/content/4/2/34.abstract
AB This article examines how the market turmoil of September to November 2008 affected trading costs in general performance, and algo performance in particular. It also examines how traders responded to the new challenges created by the market turmoil. How does one execute trades in the new environment? Trade more high-touch or low-touch? Trade more or less aggressively?The analysis compares the market turmoil period to a normal “benchmark” period, May 2008. It finds that in the market turmoil period: 1) quoted spreads on the S&P 500 stocks increased 50% and quoted depth decreased 50%, 2) algo usage remained steady at 21% of executed value but algo clients shifted to more aggressive executions, 3) the liquidity impact of the average 20,000-share order in the sample more than doubled to 25 bps (10 bps in May), and 4) alpha-to-close was higher, so despite the higher liquidity impact the average algo client captured some alpha-to-close.TOPICS: Volatility measures, risk management, statistical methods