ALPE, an online reinforcement-learning regressor, is reported to beat batch ML models for mid-price forecasting, but the evaluation likely leaks the target into the inputs.
Data-driven measures of high-frequency trading
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abstract
High-frequency trading (HFT) accounts for almost half of equity trading volume, yet it is not identified in public data. We develop novel data-driven measures of HFT activity that separate strategies that supply and demand liquidity. We train machine learning models to predict HFT activity observed in a proprietary dataset using concurrent public intraday data. Once trained on the dataset, these models generate HFT measures for the entire U.S. stock universe from 2010 to 2023. Our measures outperform conventional proxies, which struggle to capture HFT's time dynamics. We further validate them using shocks to HFT activity, including latency arbitrage, exchange speed bumps, and data feed upgrades. Finally, our measures reveal how HFT affects fundamental information acquisition. Liquidity-supplying HFTs improve price discovery around earnings announcements while liquidity-demanding strategies impede it.
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Minimal Batch Adaptive Learning Policy Engine for Real-Time Mid-Price Forecasting in High-Frequency Trading
ALPE, an online reinforcement-learning regressor, is reported to beat batch ML models for mid-price forecasting, but the evaluation likely leaks the target into the inputs.