Economy – Quantitative Finance – Trading and Market Microstructure
Scientific paper
2010-01-05
Economy
Quantitative Finance
Trading and Market Microstructure
23x2 pages, 7x2 figures, 1x2 tables and in both English and Chinese versions
Scientific paper
We develop a theoretical trading conditioning model subject to price volatility and return information in terms of market psychological behavior, based on analytical transaction volume-price probability wave distributions in which we use transaction volume probability to describe price volatility uncertainty and intensity. Applying the model to high frequent data test in China stock market, we have main findings as follows: 1) there is, in general, significant positive correlation between the rate of mean return and that of change in trading conditioning intensity; 2) it lacks significance in spite of positive correlation in two time intervals right before and just after bubble crashes; and 3) it shows, particularly, significant negative correlation in a time interval when SSE Composite Index is rising during bull market. Our model and findings can test both disposition effect and herd behavior simultaneously, and explain excessive trading (volume) and other anomalies in stock market.
Chen Ding
Gou Chengling
Han Liyan
Piao Yan
Shi Leilei
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