Back-test on market microstructure order book

Abstract

Traders nowadays are doing intraday trading by using parameterized trading strategies to provide the market with liquidity. Part of them use strategies associated with the market microstructure. This paper will mainly test empirically on Microstructure Order Book strategy to see if the Chinese A-share market is efficient or not. My empirical test mainly consists of two parts. First, I need to access industry-level data, which at least span half of the year. Then, using Python, a modern programming language, to clean the data. In the following, I need to write the code to do an analysis job to test a large wide of alternative parameters. Last, to calculate the Sharpe ratio and to select the combination of parameters to maximum the Sharpe ratio. As for the importance of this test, it would show whether an investor can get profits through algorithmic trading by picking up certain parameters.