developing high frequency equities trading models

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1、DevelopingHigh-FrequencyEquitiesTradingModelsByByLeandroRafaelInfantinoSavionItzhakiB.Sc.IndustrialEngineeringB.Sc.ElectricalEngineering/B.A.PhysicsInstitutoTechnologicoDeBuenosAiresTechnion-IsraelInstituteof(ITBA),2004Technology,2006SUBMITTEDTOTHEMITSLOANSCHOOLOFMANAGEMENTINPARTIALFULFILLMENTO

2、FTHEREQUIREMENTSFORTHEDEGREEOFARCHIVESMASTEROFBUSINESSADMINISTRATIONMASSACHUSETTSINSITuTEATTHEOF1ECHNOLOGYMASSACHUSETTSINSTITUTEOFTECHNOLOGYN082010June,2010LIERARIES©2010LeandroR.InfantinoandSavionItzhaki.Allrightsreserved.TheauthorherebygrantstoMITpermissiontoreproduceandtodistributepubliclypa

3、perandelectroniccopiesofthisthesisdocumentinwholeorinpartinanymediumnowknownorcreated..,ereafterSignatureofAuthor:LeandroR.InfantinoMITSloanSchoolofManagementMay7,2010,r)/7,/SignatureofAuthor:SavionItzhakiMITSloanSchoolofManagementMay7,2010Certifiedby:RoyE.WelschProfessorofStatisticsandManageme

4、ntScienceandEngineeringSystemsThesisAdvisorAcceptedby:DebbieBerechmanExecutiveDirector,MBAProgramMITSloanSchoolofManagementDevelopingHigh-FrequencyEquitiesTradingModelsByLeandroRafaelInfantinoandSavionItzhakiSubmittedtotheMITSloanSchoolofManagementonMay7,2010inPartialFulfillmentoftheRequirement

5、sfortheDegreeofMasterofBusinessAdministrationAbstractThepurposeofthispaperistoshowevidencethatthereareopportunitiestogeneratealphainthehighfrequencyenvironmentoftheUSequitymarket,usingPrincipalComponentAnalysis(PCAhereafter)asabasisforshorttermvaluationandmarketmovementsprediction.Thetimeframeo

6、ftradesandholdingperiodsweareanalyzingoscillatebetweenonesecondtoashighas5minutesapproximately.Weparticularlybelievethatthistimespaceoffersopportunitiestogeneratealpha,giventhatmostoftheknownquantitativetradingstrategiesareimplementedintwodifferenttypesoftimeframes:eitheronthestatisticalarbitra

7、getypicaltypeoftimeframes(withvaluationhorizonsandtradingperiodsintheorderofdaysorweekstomaybeevenmonths),orinthepurelyhighfrequencyenvironment(withtimeframesontheorderofthemilliseconds).Onthelatterstrategies,thereisreallynotmuchi