Showing papers on "Algorithmic trading published in 1977"

A Tax Loss Trading Rule

Abstract: Technical analysis has been so pummeled by evidence supporting the efficient nature of market behavior that most researchers gave it up for dead years ago.' By now it seems a foregone conclusion that any sort of general trading rule based on past prices is bound to fail. That is, any general trading rule is quite unlikely to pick up sufficient dependencies to overcome the extra transactions costs of a switching strategy compared with a buyand-hold strategy. Trading rules which deal with special situations, however, may still be found to be useful. For example, Smidt suggests that there may be price dependencies associated with demand for liquidity, reaction lags, and speculative bubbles.2 Following up Smidt's hypothesis, several studies suggest profitable trading strategies associated with block trading.3 On the other hand there have been many attempts to find usable price dependencies associated with splits, dividends, and earnings reports, with mixed results.4 This paper is in the tradition of those studies which have searched for "special situation" price dependencies.

The impact and efficiency of institutional net trading imbalances

Abstract: THE INSTITUTIONAL INVESTOR STUDY (hereafter IIS) of the Securities and Exchange Commission [10] found that the trading of large institutions tends to predominate on one side of the market in a particular stock at a particular time, thereby creating net trading imbalances among institutional investors. Possible explanations why these net trading imbalances occur would include: (1) institutions pattern their trading after that of certain leader institutions; (2) institutions rely on the same broker-dealers as a source of external research information; or (3) institutions' internal analysts have the same data available to them and interpret it similarly. The purpose of this study is to analyze the risk-adjusted returns of securities involved in the large aggregate quarterly trading imbalances of investment companies over a ten-year period.' Specifically, the study will attempt to ascertain: (1) what impact large net trading imbalances have on abnormal security returns during the months of the trading; (2) whether fund managers participating in the trading imbalances are possibly influenced by past price movements; and (3) whether fund managers have any ability to forecast future relative price changes or possibly influence subsequent price changes by their consensus trading activity. The latter topic directly addresses the question of market efficiency. Investment company managers expend considerable amounts of time, effort, and money to search out and identify undervalued and overvalued securities. If successful in their consensus decisions, the large net purchases should achieve positive, abnormal returns in subsequent periods while the net sales would subsequently achieve negative, abnormal returns. This would, of course, be possible only if the market was inefficient due to these fund managers having access to information either not available to, or before, other investors, or having the unique ability to use public information to make superior predictions concerning future news events. The other possibility that the occurrence of large net buying (selling) imbalances themselves cause subsequent price behavior to be favorable (unfavorable) will not be distinguishable from that of market inefficiency. The methodology of analyzing the return behavior of the securities involved in the large net trading imbalances is explained in section II and the empirical results provided in section III. Section IV offers the conclusions of the study.