Recycling Old Academic Papers Is Not A Good Strategy


Last week we debunked an academic paper which was making the rounds through the media.  In our post last week, we mainly wanted to point out that the paper was based on faulty data. We thought we put this paper to rest but for some reason the paper keeps appearing in the media with the claim that the European Central Bank (ECB) supports HFT.  Just in the past few days, the FT ran a piece titled “High speed trading ‘aids efficiency’, ECB says”  and The Globe And Mail ran a piece titled “ECB Appears to Wade Into High Frequency Trading Debate”

Today we would like to clear a few more thing up about this paper which was written by Brogaard, Hendershott and Riordan :

1) The paper is NOT new.  In fact, it has been around for quite some time.  A search of the SSRN database shows that the paper was first posted on October 12, 2011 and was last revised on April 26, 2013.  This paper is over two years old but for some reason it has found its way back into the global press.  Now, how do you think that could have happened?  Maybe we should ask the HFT lobbying groups.

2) The ECB did NOT defend high frequency trading.  The cover page of the report clearly states that the “working paper should not be reported as representing the views of the ECB.”  We wonder how a two year old paper was recycled and reproduced as a working paper under an ECB fellowship program.  No doubt this would be a good question for the FIA European Principal Traders Association.

3) What does the ECB really think about high frequency trading?  Let’s just go to the December 13, 2012 official “Opinion of the European Central Bank on High Frequency Trading” press release:

“The ECB welcomes the draft law as it aims to curb risks for financial stability and to contain market manipulation caused by high frequency trading.

Moreover, in addition to the introduction of a fee for excessive use of trading systems, an obligation is introduced whereby trade participants are to guarantee an appropriate ratio between (1) orders placed, changes to and cancellations of orders, and (2) business transactions that are actually concluded. A minimum tick size is introduced in order to counteract the trend towards ever smaller minimum tick sizes. In order to prevent a move towards multilateral trading systems to avoid such regulation, the draft law is also applicable to multilateral trading systems.”

Hmmm, now that sure doesn’t sound like the ECB is defending high frequency trading.

We must admit that we were impressed with the efforts of the HFT lobby to recycle an old paper and convince folks that the ECB was supporting it.  They were able to bamboozle more than one financial reporter around the globe.  We are, however, glad that we were able to set the record straight on this one and we’ll be on the lookout for this strategy in the future. It’s pretty sad that the HFT community had to resort to this type of behavior.  Things must be even worse than we thought for them.