I’ve written here about exchange simulation in service of back-testing trading algorithms and briefly mentioned the difficulties of simulating the behavior of an order book. I just came across “A stochastic model for order book dynamics” by Cont, Stoikov and Talreja of Columbia and Cornell financial engineering groups. (I’ve also saved a local copy of the paper here.) While their focus isn’t on simulation for the purpose of back-testing but on probabilistic reasoning in real-time for high-frequency strategies, they illustrate a variety of models/methods for such reasoning. The equation depicted above is part of their description for reasoning about the likelihood of being able to make the spread in a stat arb strategy which places orders simultaneously at the bid and ask. It’s very technical, but interesting even if only to illustrate the kinds of tools being wielded in the service of algorithmic trading!
There’s an old wall st saw: “Sell Rosh Hashanah, Buy Yom Kippur” that, according to this guy at least, has had good performance since 1915.
I haven’t tried to reproduce his work to confirm it, but I’m certain that anyone who bought today’s close is a serious mensch!
I was looking for a couple of books on amazon today and came across this offering of a hoodie (pictured above) which reads: “I helped bailout the banking system and all I got was this lousy tee shirt!” which I’d (admittedly more rancorously) suggested only a few days ago…
Just as curious, the search that revealed this gem was meant to find books similar to one I’ve recently read by Dr. Andrew Lo, “Hedge Funds: an Analytic Perspective” (pictured left) and which, like all of his work, I found interesting and informative. I’m not sure exactly how Amazon matched these two products together, but it’s funny to imagine that the same people buying the one are also buying the other!
A reader, Chris P, (following up on this post) recently inquired by email about the specific rules on Market-On-Open orders. In particular, he was interested in the cut-off times for MOO orders. Market-On-Close orders have a cut-off time of 3:40 and 3:50 on the NYSE and Nasdaq, respectively. That is, MOC orders can’t be entered, modified or cancelled after the cut-off.
He pointed me to two documents, one excellent and concise guide to the open and close from the Nasdaq and another relatively useless piece of documentation from the NYSE. The Nasdaq doc indicates that MOO orders must be entered by 9:28am and my own informal experiment confirms this. MOO orders bound for the Nasdaq after 9:28 will be rejected as invalid orders.
The NYSE doc was less precise (didn’t specify any time) and I was able to enter a MOO order after 9:28 which was filled, while orders after the 9:30 open were rejected. If any reader has more precise information or some experiences to share on the topic, kindly use the comments to do so.
