Thursday, 21 July 2011

Week Starting 18.07.2011

Achievements for this week:

Experimented to verify the hypothesis that Algorithmic Trading affects liquidity positively. That is when Algorithmic Trading Frequency rises Liquidity rises and when Algorithmic Trading Frequency  falls so does Liquidity.
  • Extracted records regarding the trades of 20 stocks for the three year duration of the data available.
  • Used MATLAB to measure the algorithmic trading frequency of these stocks on randomly chosen days for 5 minute blocks. Plotted the results on a line graph.
  • Used MATLAB to measure the bid ask spread of these stocks on the same days. Plotted the results on a line graph. The bid ask spread is an indicator of liquidity.
  •  It was observed that there is a correlation between algorithmic trading falls so does liquidity and this seems to indicate that there is a possibility that algorithmic trading may cause it. However causation does not equal correlation and so the Granger Causality Test was used on R to verify causality. Preliminary tests indicate causality does exist. However further verification is required.

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