Foucault [Journal of Financial Markets, 2, 99–134, 1999] provides a theoretical basis for how stock price volatility influences the aggressiveness of limit order traders. I investigate volatility discovery across stock limit order book and options markets using a broad panel of NYSE‐listed stocks from November 2007 to January 2008 and find strong evidence that, as predicted, the aggressiveness ...

DRAFT February 12, 5 pm (Choose " print layout view " in Word) The influence of speculative stocks on value stocks is examined through a set of economics experiments. The speculative asset is designed to model a company involved in a rapidly growing market that will be saturated at some unknown point. Using a control experiment where both assets are similar value stocks, we find statistical sup...

This paper investigates the impact of the introduction of Universal Stock Futures (USFs) on underlying market dynamics (volatility and the level of feedback trading). Analysis of USFs provides a number of advantages compared to investigation of index futures, leading to reliable and wider ranging insights into the impact of derivatives. Specifically: (i) any impact of derivatives is more likely...

An algorithm for managing a portfolio of stocks using a trading agent is presented. A simulation game inspired by history-based Parrondo games is described. A performance measure is defined, with which various strategy mixes can be judged. Even when transaction costs are taken into account, active portfolio management (as opposed to Buy and Hold) is shown to be profitable.

Individual investors trade stocks in a way very different from what mainstream financial economic theory would predict: they generate too much trading volume and yet obtain belowbenchmark performance. This chapter overviews major 'puzzles' of individual investor trading. The extant literature suggests that behavioral biases and psychological explanations are largely responsible for many of the ...

There are numerous studies suggesting that published news stories have an important effect on the direction of the stock market, its volatility, the volume of trades, and the value of individual stocks mentioned in the news. There is even some published research suggesting that automated sentiment analysis of news documents, quarterly reports, blogs and/or Twitter data can be productively used ...

 This paper characterizes the trailing-stop strategy for stock trading and provides a simulation model to evaluate its validity. Based on a discrete time computational model, we perform probabilistic analyses of the risks, rewards and trade-offs of such a trading strategy. Numerical examples using real data from the S&P 500 and the Dow Jones Industrial Average indicate that the trailing-stop s...

This study explores the relationship between qualified foreign institutional investors (QFIIs) and Taiwan’s stock market and evaluates the effect of QFIIs’ investment transactions on Taiwan’s stock market. By taking the date of easing regulatory restrictions on foreigners’ stock investment holdings as a cutoff point, the research uses the highest and lowest 10 stocks of QFII holdings in three i...

This paper presents a model of portfolio choice and stock trading volume with lossaverse investors. The demand function for risky assets is discontinuous and non-monotonic: as wealth rises beyond a threshold investors follow a generalized portfolio insurance strategy. This behavior is consistent with the evidence in favor of the disposition effect. In addition, loss-averse investors will not ho...

Taking advantage of a unique corporate bond transaction dataset from the National Association of Securities Dealers (NASD), this paper investigates whether information-based trading takes place in the high-yield corporate bond market, and how firm-specific information flow across related securities, including stocks, options and corporate bonds. Differing from previous studies, I find that curr...