Finance Research Papers

Here are a few hot-off-the-press research abstracts which caught my eye:

• Need for Speed: An Empirical Analysis of Hard and Soft Information in a High Frequency World studies news sentiment-based high-frequency trading using an extension of Hasbrouck's market microstructure model (and Chaboud and Tookes) and NASDAQ high-frequency data from 2008 to 2009. The paper seeks to answer whether we can effectively do machine-driven trading based on news sentiment and whether speed matters. The author distinguishes between "hard" and "soft" information events where hard events are price data and soft events news ticker items, blog posts, and Twitter messages (though this paper focuses on news ticker alone). This study only uses Reuters News Sentiment software. The conclusion is that at this point, non-high frequency traders have an advantage in processing the "soft" information events. I think this area is gaining quite a bit of attention with both bigger firms (Thomas Reuters, Dow Jones) and smaller ones (a startup named Stockr.com (invite link) for example) are investing in news sentiment and social media-based trading (respectively).
• Market Making Under the Proposed Volcker Rule
• No Strings Attached: When Giving it Away Versus Making Them Pay Leads to Negative Net Benefit Perceptions in Online Exchanges

• Agency Implications of Equity Market Timing studies market timing impacts of share repurchases (share buybacks) and equity sales.
• Bulk Classification of Trading Activity studies aggressor classification and toxic order flows using time or volume bars only instead of tick data (with greater accuracy).
• Asset Market Reactions to News: An Experimental Study discusses an artificial study of market under-reaction to earnings news. The claim is that market decision-makers base their decision more on existing prices and fundamentals. I wonder how this would look like with automated trading and algorithms, since they are even more skewed towards price-based analysis and decision-making.
• Foresight Driver Review: Electronic Trading and Market Structure is part of the UK Government Office for Science's Foresight project for studying the challenges from increasing "computer trading in financial markets."
• Optimal Portfolio Execution using Market and Limit Orders presents an execution strategy providing an optimal combination of market and limit orders to execute a portfolio.
• The Microstructure of the TIPS Market is a paper from the Fed studying the market microstructure of inflation-protected TIPS treasury bonds/notes. It turns out that bid-ask spreads don't vary that much from nominal but trading activity and quote frequency do.