Abstract

High Frequency Trading (HFT) algorithms are automated feedback systems interacting with markets to maximize returns on investments. These systems have the potential to read different resolutions of market information at any given time, where Level I information is the minimal information about an equity--essentially its price--and Level II information is the full order book at that time for that equity. This paper presents a study of using Recurrent Neural Network (RNN) models to predict the spread of the DOW Industrial 30 index traded on NASDAQ, using Level I and Level II data as inputs. The results show that Level II data does not significantly improve the prediction of spread when predicting less than 100 millisecond into the future, while it is increasingly informative for spread predictions further into the future. This suggests that HFT algorithms should not attempt to make use of Level II information, and instead reallocate that computation power for improved trading performance, while slower trading algorithms may very well benefit from processing the complete order book.

Degree

College and Department

Physical and Mathematical Sciences; Computer Science

Rights

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