Three academics were named co-winners of the $100,000 prize in AQR Capital Management's Insight Awards, for their paper on market dynamics and structure in an era of high-frequency trading, outdoing four other finalist papers, including one co-authored by a Nobel laureate.
Eric Budish, Peter Cramton and John J. Shim were recognized for what AQR called their “path-breaking” paper, “The High-Frequency Trading Arms Race: Frequent Batch Auctions as a Market Design Response.” Their research uses “millisecond-level direct-feed data from exchanges.” The authors propose an alternative to the “arms races” employed to exploit trading opportunities.
The three — Mr. Budish, associate professor of economics, University of Chicago Booth School of Business; Mr. Cramton, professor of economics, University of Maryland, College Park; and Mr. Shim, Chicago Booth School Ph.D. candidate in finance — will share the prize equally.
In their paper, the authors contrast important costs and benefits of continuous trading when traders transact virtually instantly in ever smaller increments of time and trading in discrete intervals of time, say, every 100 milliseconds, and conclude discrete interval trading better serves market participants.
In total, 248 papers, all unpublished as required by the competition, from 26 countries were submitted in AQR's third annual competition.
AQR plans to post the papers on May 28.
The winning paper was among five finalist papers. Authors from each finalist paper presented and discussed their research April 24 before a gathering, including the 19-member AQR award selection committee and some AQR clients.
The authors of the other finalist papers were recognized with honorable mention awards, which carry no cash prize. They are:
- Robert F. Engle III, winner of the 2003 Nobel prize in economics and the Michael Armellino professor of finance, Stern School of Business, New York University, and Emil N. Siriwardane, Stern School Ph.D. candidate in finance, co-authors of “Structural GARCH: The Volatility-Leverage Connection”;
- Dong Lou, assistant professor in finance, and Christopher Polk, professor of finance, both of the London School of Economics, co-authors of “Comomentum: Inferring Arbitrage Activity From Return Correlations”;
- Torben G. Andersen, the Nathan S. and Mary P. Sharp professor of finance, Kellogg School of Management, Northwestern University; Nicola Fusari, assistant professor, Carey Business School, Johns Hopkins University; and Viktor Todorov, associate professor of finance, Kellogg School, co-authors of “The Risk Premia Embedded in Index Options”; and
- Samuel M. Hartzmark, Ph.D. candidate in finance and business economics, Marshall School of Business, University of Southern California, author of “The Worst, the Best, Ignoring All the Rest: The Rank Effect and Trading Behavior.”
The award, sponsored by AQR, seeks to encourage innovation in academic research that can be applied in investment management, said David Kabiller, AQR founding principal and a member of the committee, in an interview.
AQR set a large cash prize to draw attention to the competition and encourage top submissions because “we believe the market responds to incentives,” Mr. Kabiller said.
Submissions for papers for the fourth annual AQR Insight Award competition are due Jan. 15.
Along with Mr. Kabiller, other members of the committee are all principals or consultants with AQR or its affiliate CNH Partners LLC.