Editor’s Letter

Trading continues to be an essential and evolving part of the investment process. In recognition, The Journal of Investing will feature a special trading issue each year, starting with this issue.

To open this special issue, Mittal, Berkow, and Zachariah outline specific examples of “queue-jumping” and describe quantitative methods that can be used to identify the exchanges with the highest likelihood of filling limit orders in real time. A ranking system is applied, and rankings are assigned to exchanges. The rankings are used to determine which exchange is most likely to receive the next marketable order for any possible competition combinations. Next, Aitken, Harris, and Harris investigate the effects of algorithmic trading and lit/dark fragmentation on US equity market quality. They find that lit/dark market fragmentation lowers/raises effective spreads, reduces/increases EOD manipulation, and increases/decreases HFT-AT once RegNMS establishes quote discipline.

As we continue, Gava, McNeal, and Turc extend recent research on late-day trading and show that trends are best caught early during the day. The defensive nature of intraday trend strategies is illustrated by considering the business cycle, investigating correlation with government bonds, and simulating the impact on a multi-asset portfolio. Chakraborty, Grant, Trahan, and Varma apply EVA style analysis on four major corporate actions—acquisitions, share repurchases (buybacks), stock splits, and dividend announcements. They find that the best alpha-generating trading opportunity was on the stocks of share-repurchasing companies in a “wise” restructurer position. In contrast, the best shorting opportunity was on the stocks of dividend-decreasing companies in a value-destroying growth position.

To conclude the issue, Bender, Cestonaro, Gomber, and Koch survey European market participants to investigate changes in research services due to research unbundling and the COVID-19 pandemic. They find that MiFID II’s research unbundling led to a drop in research coverage, especially for subject matter experts, but did not affect firms’ access to equity. In addition, the COVID-19 pandemic did not aggravate the impact of research unbundling on research coverage and firms’ access to equity.

As always, we welcome your submissions. We value your comments and suggestions, so please email us at journals{at}investmentresearch.org.

Brian Bruce

Editor-in-Chief

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