Showing papers on "Algorithmic trading published in 1987"

Program Trading and Expiration-Day Effects

Abstract: The arbitrage between index futures and the underlying cash index and the cash settlement feature of index futures contracts, which requires arbitrageurs to unwind positions in the stock market, are thought to be at the heart of the abnormal stock price movements during the "triple-witching" hour-the last hour of trading on days on which index futures, index options and options on index futures expire simultaneously. During 1984 and 1985, volume was substantially higher than normal in the last hour of trading on those quarterly Fridays. Open interest in the expiring futures contracts on the expiration day amounted to about 40 per cent, of the average month-end open interest. The incremental stock market volume, however, was approximately one-third the volume that would be inmplied if the entire expiration-day open interest were traded in the stock market. Analysis of stock market price changes in the last hour of expiration days and the first halfhour of the following day indicates that the volatility of price changes was significantly higher on expiration days, with the stock market tending to fall. Stocks not in the SP index option expirations themselves did not lead to abnormal market movements. When the magnitude of price effects was measured by the degree of reversal in prices on the morning after the expiration day, the average magnitude of the price effect in the 10 most recent quarterly futures contract expirations examined was about 0.4 per cent of the closing index value at expiration. The average expiration-day price effect of 0.4 per cent is not large, considering that a price impact of approximately 0.25 per cent of the value of the transaction can be expected on the basis of the bid-ask spread. Once this market impact cost is drawn out, the average expiration day price impact falls to about 0.15 per cent of the value of the transaction, an amount representing the additional cost of liquidity. Furthermore, price impacts in excess of those found on expiration days are frequently encountered in large block transactions, where the cost of providing liquidity also increases. On expiration days, however, transactions in many stocks occur simultaneously, so the market as a whole is affected.

A Preliminary Test of the Presence of Window Dressing: Evidence from Institutional Stock Trading

Abstract: For years, investors and accountants have speculated that managers “window dress,” that is, undertake actions to improve their balance sheets before they issue their financial reports. Similarly, institutional money managers are said to adjust their stock portfolios before the release of their quarterly reports.In this paper, stock market volume data for the overall market and for a number of different sample portfolios are examined to see if there is abnormal end-of-period trading activity. The results suggest that trading activity increases at the end of each quarter. This result is consistent with the window dressing hypothesis.

Off-Board Trading of NYSE-Listed Stocks: The Effects of Deregulation and the National Market System

Abstract: An econometric time-series model of off-board trading of NYSE-listed stocks shows that high NYSE commission rates were an incentive for third-market trading but that trading on the regional exchanges, which is most of the off-board trading, has been affected very little by commissions or their deregulation. The effects of some changes in the trading organization and rules are estimated, including several that are part of the emerging National Market System. The estimates imply that the NMS has increased competition for the NYSE, as Congress intended, and has prompted the NYSE to improve its performance to retain market share.

Futures trading and oil market conditions

Abstract: This paper examines how changes in oil market conditions affect the link between spot and futures prices for oil and ways in which information about market conditions may be extracted from observation of futures trading. It is found that futures prices do not perform well as simplistic predictors of spot prices. A more sophisticated model of spot and futures prices is developed that emphasizes (1) the relationship between inventory demand and price behavior, and (2) the effect of supply shocks and inventory demand shocks on market performance. Comparison of the model's results with actual behavior in the market for No. 2 Heating Oil indicates that futures market activity can be useful as a guide for understanding how a disturbance is affecting the market. 12 refs., 6 figs., 4 tabs.

A Handbook for Professional Futures and Options Traders

Abstract: Technical Analysis. Chart Analysis. Fundamental Analysis. Seasonal Analysis. Cyclical Analysis. Spread Analysis. Arbitrage and Short-Term Trading. Hedging. Foreign Exchange. Financial Factors. Testing. Options. Portfolio Considerations. Conditional Analysis. Trading Programs. Updating. Bibliography. Index.

Has Programmed Trading Made Stock Prices More Volalile

Abstract: The presumed source of the volatility is a trading strategy called “programmed trading.”2 This strategy, which essentially involves trading on small and shortlived price differences for the same group of stocks in the spot, futures and options markets, is not new. The introduction of stock jnde~futures around 1982 and the application of computer techniques to monitor price differences and trigger trades between markets, however, are novel. These two innovations have reduced the cost of transacting among the markets, which has resulted in increased trading activity. The increased activity, the size of the trades made by individual players and the behavior of stock prices on days when stock index futures and options contracts