Showing papers on "Algorithmic trading published in 1980"

The role of economic analysis in futures market regulation.

Abstract: The history of regulation of commodity futures markets manifests persistent concern over "excessive speculation." The phrase is found repeatedly in the hearings leading to the earliest federal statute-the Grain Futures Act of 1922--and it reappears in each subsequent revision of the statute, including the two major ones, the Commodity Exchange Act of 1936 and the Commodity Futures Trading Act of 1974 (Cowing, Rainbolt). A substantial revision in the Commodity Exchange Act in 1968 was also largely an outgrowth of the notorious vegetable oil swindle of 1963. The phrase "excessive speculation" has not been defined, much less quantified, in the statutes, even though the phrase is used specifically to justify the creation of limits on speculative positions. The economic literature has recognized the need for and importance of speculation and even has provided evidence of speculative inadequacy as a chronic affliction of some futures markets (Gray 1960, 1967). A major effort to fill the definitional void was Working's construction of a speculative index (1960). Whereas the term "excessive" is employed in the pejorative sense in the congressional deliberations, Working simply undertook to use market statistics to describe the relationship between hedging and speculation. His research led to a measure, the speculative index, which reflects the extent by which the level of speculation exceeds the minimum necessary to absorb long and short hedging, recognizing that long and short hedging positions could not always be expected to offset each other even in markets where these positions were of comparable magnitudes. Speculation above the minimum defined by the index was not defined simultaneously as excessive. Indeed, in some markets whose performance is demonstrably hampered by speculative inadequacy, the level of speculation exceeds that minimum.

The arc sine law and the treasury bill futures market

Abstract: According to the so-called "arc sine law," mechanical trading rules applied to price movements in financial assets will result in long periods of cumulative success, but equally long periods of cumulative failure. The long periods of success will tempt investors to apply trading rules to actual decisions. The long periods of failure make it very likely that such application will eventually blow them out of the market.

The battle of insider trading vs. market efficiency

Abstract: T his study attempts to determine the extent to which an apparentmarket inefficiency is corrected following public recognition of its existence. For example, studies by Pratt and DeVere [14] and Jaffe [7] have shown both that an investor can achieve abnormally high rates of return relative to the market if he purchases stocks previously purchased by corporate insiders and that those abnormal returns persist over periods of up to two years. If these studies are valid, and if this market inefficiency did in fact exist, then the efficient market hypothesis implies that the inefficiency should disappear once the findings are publicly announced and investors become aware of the opportunities offered by following insider decisions. This study intends to test such a presumption. That individuals possessing confidential information (insiders) can and do make above-average returns by trading in stocks of their own companies has been demonstrated and corroborated by several investigators. Lorie and Niederhoffer [13] found that intensive buying seems to indicate that the stock is likely to outperform the market during the following six months, while Pratt and DeVere [14] found that, during the six year span 1960-1966, insiders not only outperformed the market but produced greater “excess” returns on purchases than on sales. Zweig [22] later showed that stocks that exhibited heavy insider buying activity increased in price faster than the market average during market upswings and declined slower in market downswings. Analyzing transactions from 1962-68, Jaffe [7] concluded that insiders do possess special information that allows them to outperform the market. Finally, in a study designed to show the rate of return for the ”average” insider, Finnerty [3] found 47 8 2 that the bulk of the excess return was earned in the first six months.’ These results imply that insiders are able to predict, to some degree, the price performance of their firm’s stock relative to the market. Although these studies provide convincing evidence of the potential for insider profitability-and hence, provide a refutation of the strong form of the efficient markets hypothesis (EMH) little research exists that deals with the potential for non-insiders to earn excess profits by using public information concerning insider transactions. Only Jaffe provides evidence on a risk-adjusted basis to show that non-

How to profit from insider trading information

Abstract: T he investment community has persistently believed that insiders, who are officers, directors, or owners of 10% or more of the common stock of a publicly-owned U. S. corporation, have access to potentially valuable information about their firm’s prospects. Therefore, numerous studies have concentrated on the usefulness and predictability of insider trading. They have, however, had inconclusive results, with some indications that insiders do possess valuable information that they may use to benefit themselves. One major shortcoming of previous studies is that they have relied almost exclusively on trading in securities listed on the American and New York exchanges, where information is generated, disseminated, and discounted very rapidly, thus precluding most opportunities for profitable trading based on insiders’ informa tion.

A Semi-Strong Form Evaluation of the Efficiency of the Hog Futures Market: Comment

Abstract: In a recent study, Leuthold and Hartmann (hereafter LH) conclude that the live-hog futures market is not efficient It is the purpose of this note to show that the findings of the LH study do not imply that the hog futures market is inefficient in an economically meaningful sense The primary issue concerns the definition of efficiency Although the "efficient market" criterion of the finance literature

The consumer's use of futures.

Abstract: This paper shows that futures should be included in an efficient portfolio and that the degree of their inclusion depends critically on the evaluation of income in real terms. As planned consumption is balanced toward items traded in the futures market, holdings of futures are shown to increase.