“My research focuses primarily on understanding liquidity in the financial markets. I have access to all the trades that have occurred on the New York Stock Exchange—nearly a trillion observations. I constructed a liquidity risk factor, an aggregate measure for the average cost of a stock transaction, and noticed that it changes dramatically from month to month. I later found that this liquidity risk factor can explain the performance of several popular equity trading strategies as well as the outperformance of some mutual funds and hedge funds.
"In looking at the data for another research project, my partners and I found something that no one had noticed before: some stocks do well in particular half hours of the day. For example, a stock that performs well between 2:00 and 2:30 on one day is likely to continue to perform well at that same time every day for almost a month. People were completely shocked by this finding. Our theory is that large-asset managers do not change their trading model every day. Rather, they trade different accounts on different days, but they’re working with the same stocks and they’re trading at the same time of day.
"When we first started this work in 2007, people were skeptical. They didn’t see the importance of studying half-hour returns. Today, high-frequency trading is one of the central topics of debate among financial regulators. We are now looking at milliseconds, and people recognize that a half hour is a lifetime for highfrequency trades.”
Dr. Ronnie Sadka is a professor and chair of the Finance Department at Boston College’s Carroll School of Management. Professor Sadka’s research focuses on liquidity in financial markets and stock-price modeling. His work has appeared in various outlets including theJournal of Finance, the Journal of Financial Economics, andFinancial Analysts Journal. Prior to joining the Finance Department at Boston College, he taught at the University of Chicago (Booth), New York University (Stern), Northwestern University (Kellogg), and the University of Washington (Foster). His industry experience includes Goldman Sachs Asset Management and Lehman Brothers (quantitative strategies). Sadka is currently a member of the economic advisory board of NASDAQ OMX.