Quantitative Portfolio Management

Chapter 1Market Data

1.1 Tick and bar data

Perhaps the most useful predictor of future asset prices are past prices, trading volumes, and related exchange-originated data commonly referred to as technical, or price-volume data. Market data comes from quotes and trades. The most comprehensive view of the equity market includes exchange-specific limit order book by issue, which is built from limit orders forming buy and sell queues at different price depths, market orders, and their crossing (trades) per exchange rules such as price/time priority. In addition to the full depth of book tick stream, there are simplified datafeeds such as Level 2 (low-depth order book levels and trades), Level 1 (best bid and offer and trades), minute bars (cumulative quote and trade activity per discrete time intervals), and daily summary data (open, close, high, low, volume, etc).

Depth of book data is primarily used by high frequency trading (HFT) strategies and execution algos provided by brokers and other firms, although one can argue that a suitable analysis of the order book could detect the presence of a big directional trader affecting a longer-term price movement. Most non-HFT quant traders utilize either daily or bar data—market data recorded with certain granularity such as every 5 minutes—for research and real-time data for production execution.¹

Major financial information companies such as Thompson Reuters and Bloomberg offer market data at different levels of granularity, both historical ...