SML ON HIGH FREQUENCY TRADING DATA

Market traders often try to predict the financial market trends and try to extract information from the trading of the various securities. To extrapolate these trends, practitioners often use a fundamental concept of capital asset pricing model (CAPM). The main purpose of this paper is to explore the High-Frequency Trading (HFT) data to verify the Efficient Market Hypothesis (EMH) as assumed by the Security Market Line (SML) using statistical methods and to find abnormal returns above the market, if exist, using the proposed model. The paper then validates the pragmatism of the obtained abnormal return using a rolling window of short interval of time trading strategy. Keywords— High Frequency Trading; Security Market Line; Abnormal Returns; CAPM