Adaptive Strategies for High Frequency Trading (research review)

Anderson, Merolla, and Pribula looked at the eminiS&P500 orderbook for their paper,  Adaptive Strategies for High Frequency Trading . They explained some fundamental concepts around applying orderbook volumes, with respect to their levels, to have an idea of where prices (bids/asks) will likely go in the extreme near term future. This is somewhat intuitive as it is in line with general ideas of exchange level supply and demand.

Forecast methods discussed applying best bid/ask Prices using orderbook volumes: 

1. Mean Squared Error Prediction
2. Support Vector Machines
3. Independent Component Analysis
4. Simple Moving Average

 Tested Trading Strategy

All market making. Basically, using the forecast value for directional bias, and spam the market with limit orders; e.g. if forecast says the inside Ask price will be higher, the strategy would start working the current best Bid and the expected Ask; and vice-versa. That's the rough idea.

So yeah, interesting research paper for anyone looking to learn about high frequency trading.

About Kerrisdale Capital's 2011 Q1 73% Return

Kerrisdale Capital appears to be a hedge fund who specializes in finding distressed securities around fraud. Bottom line here: small niche, big edge. They're up 299% since inception in 2009.

Here's their latest Quarterly Letter, around how they make money.

Kerrisdale Quarterly Letter 3-31-11

Marriage risk management

So Paul Elam wrote a piece around the risks of marriage, divorce, and has made the whole ordeal quite horrifying. While I don't agree with everything in the article, it does provoke some critical, practical thoughts.


"
Marriage is quite literally an investment of not only your heart, but all of your work, income—and future income, especially when children are involved. Now, if an investment broker told you he had a deal in which you could invest, and there was more than a 50 percent chance that you would be wiped out and spend most of the rest of your life paying the margin call or going to jail, how much would you invest?
"


So from the standpoint of cold risk management, the choice appears simple; yet it defies every bit of traditional belief. Of course what about the successful marriages? There is probably more to it than simple statistics, and that may be where Elam, and 50%+ of the failures had missed; stuff to maintain/improve human relationships, I'm sure somethings' there.