Abstract
For firms involved in high-frequency trading, of primary concern is whether or not a particular trading system will generate sufficient profits to cover its considerable research and development, fixed and variable costs. Since these costs are allocated per accounting period, firms view market returns from a bottom line profitability perspective. The current performance metrics of finance do not provide sufficient information to assess investments in high-frequency trading systems in this context. We develop and test a capability measure that captures the performance of high-frequency trading systems in this light.
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