The CAPM and the High Frequency Trading: Will the CAPM hold good under the impact of high-frequency trading?

Ki, YoungHa

Publication

The CAPM and the High Frequency Trading: Will the CAPM hold good under the impact of high-frequency trading?

Ki, YoungHa

Abstract

The main purpose of this paper is to investigate the possible relationship between the Capital Asset Pricing Model - CAPM and the prevailing High Frequency Trading (HFT) method of stocks trading and to explain the relationship between them, if exist, with the references from research papers and advanced statistical method. This paper mainly follows Jagannathan and Wang's paper (The Conditional CAPM and the cross-section of expected return, 1996) to explain the capability of CAPM, especially with financial turmoil. However, instead of using the cross-sectional statistical method by following Jagannathan and Wang, the mixed model will be implemented. This paper draws the intermediate conclusion regarding the relationship and shows the existence of relationship, if exist, rather than introducing a new model.