This paper studies the influences of a high-frequency trader (HFT) on large whose future trading is predicted by former. We conclude that HFT always front-runs and benefited when: (1) there sufficient high-speed noise trading; (2) HFT's prediction vague enough. Besides, we find surprisingly making less accurate might decrease trader's profit; when little trading, although nearly does nothing, s...

In this paper, we investigate the ability of higher order fuzzy systems to handle increased uncertainty, mostly induced by the market microstructure noise inherent in a high frequency trading (HFT) scenario. Whilst many former studies comparing type-1 and type-2 Fuzzy Logic Systems (FLSs) focus on error reduction or market direction accuracy, our interest is predominantly risk-adjusted performa...

We consider whether sentiment affects the validity of CAPM. We hypothesize that pessimistic periods have low levels of noise trading because costly short-selling mutes trading on negative sentiment. On the other hand optimistic sentiment stimulates long positions that are easier to establish, and optimistic periods may also attract more naïve investors, stimulating greater noise trading. Thus, ...

The transformed-data maximum likelihood estimation (MLE) method for structural credit risk models developed by Duan (1994) is extended to account for the fact that observed equity prices may have been contaminated by trading noises. With the presence of trading noises, the likelihood function based on the observed equity prices can only be evaluated via some nonlinear filtering scheme. We devis...

Although brokers’ trading is endemic in securities markets, the form of this trading differs between markets. Whereas in some securities markets, brokers may trade with their customers in the same transaction (simultaneous dual trading or SDT), in other markets, brokers are only allowed to trade after their customers in a separate transaction (consecutive dual trading or CDT). We show theoretic...

We study the extent to which, in a laboratory …nancial market, noise trading can stem from subjects’ irrationality. We estimate a structural model of sequential trading by using experimental data. In the experiment, subjects receive private information on the value of an asset and trade it in sequence with a market maker. We …nd that, in the laboratory, the noise due to the irrational use of pr...

This paper evaluates the welfare implications of front-running by mutual fund managers. It extends the model of Kyle (1985) to a situation in which the insider with fundamentals-information competes against an insider with trade-information and in which noise trading is endogenized. Noise traders are small investors trading through mutual funds to hedge non-tradable or illiquid assets. The insi...