Pairs trading is an investment strategy that depends on the price divergence between a pair of stocks. Essentially, this strategy involves choosing a pair of stocks that historically move together, then taking a long-short position if the pair’s prices diverge, and finally reversing the previous position when prices converge. The rationale of the pairs trading is to make a profit and avoid mark...

return and volatility spillovers are important for portfolio selection, asset valuation and market efficiency investigation. using a var-bekk framework model, this paper investigates return and volatility spillover effects between three size-sorted equity indices in tehran stock exchange (tse). although daily return of large stocks leads small stocks (lead-lag effect), there wasn’t any spillove...

In this paper we apply evolutionary optimization techniques to compute optimal rule-based trading strategies based on financial sentiment data. The sentiment data was extracted from the social media service StockTwits to accommodate the level of bullishness or bearishness of the online trading community towards certain stocks. Numerical results for all stocks from the Dow Jones Industrial Avera...

a r t i c l e i n f o This paper examines the relationship between option trading activity and stock market volatility. Although the option market is uniquely suited for trading on volatility information, there is little analysis on how trading activity in this market is linked to stock price volatility. The bulk of the discussion tends to focus on whether trading activity in the stock market i...

This paper empirically evaluates the effects of NASDAQ’s $1-minimum-bid-price threshold (known as the one-dollar rule) as part of its listing maintenance criteria. Even though this controversial rule was introduced as early as in September 1991, it remained unexplored by academic research. Empirical evidence compiled in this study suggests that the implementation of this one-dollar rule is just...

Internet stock message boards provide individual investors with a new information medium that could have several effects on stock activity. Message boards may provide investors with a new information source on small cap stocks. Message boards may affect the trading and volatility of certain stocks by influencing investors. The impact of message board information may vary according to characteri...

In equilibrium, active investing must be compensated with returns from gathering costly information about stock values (e.g., Grossman and Stiglitz, 1980). In return, active investors serve to promote price discovery in stocks. However, substantial trading is required by active, informed investors, who may prefer to trade in the same stocks as passive, uninformed investors to hide their intenti...

Combining data on high frequency trading (HFT) activities of a randomly selected sample of 120 stocks and data on institutional trades, I find that HFT increases the trading costs of traditional institutional investors. One standard deviation increase in the intensity of HFT activities increases institutional execution shortfall costs by a third. Further analysis suggests that HFT represents as...

A trading strategy is an algorithm that provides decision support for a trader. An ideal system suggests which stocks to buy and sell at every moment. Limited but still very useful trading strategies suggest stocks to buy, but leave the sell decisions and the decision of proportions of different stocks to the trader, or to another automatic decision mechanisim. In this paper we use a previously...

Does Algorithmic Trading Improve Liquidity? Algorithmic trading has sharply increased over the past decade. Equity market liquidity has improved as well. Are the two trends related? For a recent five-year panel of New York Stock Exchange (NYSE) stocks, we use a normalized measure of electronic message traffic as a proxy for algorithmic liquidity supply and trace the associations between liquidi...