تغییرات بزرگ قیمتی در مقیاس کوچک

In this study we examine the evolution of price, volume, and the bid–ask spread after extreme View the MathML source intraday price changes on the NYSE and the NASDAQ. We find that due to strong behavioral trading there is an overreaction. Furthermore, we find that volatility which increases sharply at the event decays according to a power law with an exponent of ≈0.4, i.e., much faster than the autocorrelation function of volatility.

Research in the past years has revealed that extreme price changes are not outliers, they are significantly frequent. Analyzing how markets react to such extreme events is crucial in order to understand the price formation process on the market. Economists have analyzed how markets react to large daily price changes and significant overreaction was found in the past, although markets seem to be getting more and more efficient over time [1]. These extreme price changes may at least partially be due to news arriving on the market, although not all events can be easily attributed to major events [2]. Previous studies have revealed that the autocorrelation of returns on the stock markets is significant for only 15–View the MathML source[3]. Thus it seems reasonable that major events take place within the trading day and daily data is not appropriate to fully understand market reaction. We will thus investigate the intraday market evolution of prices, volume and the bid–ask spread after extreme price changes of View the MathML source. Furthermore, the effect of external price shocks has been analyzed on multi-agent model simulation of stock markets [4] and these studies show that in case there is behavioral trading on the stock market there is an overreaction to external price shocks and market volatility increases sharply at the event [5]. Thus if we are able to localize extreme intraday price changes, we will probably get an insight into the process in which the agents of different behaviors form the new equilibrium market price.

We may thus conclude that one gets an interesting insight into the price formation process when examining large price changes on small scales. The overreaction in case of both extreme price increases and decreases on both markets refer to the presence of trading on behavioral motives within the trading day. We find that not only the volatility jumps at the event (which itself is the event) but volume, and on the NYSE the bid–ask spread increase as well. We find furthermore that the volatility decays according to a power law much faster than the autocorrelation of volatility itself. This points to the fact that extreme price shocks (which are quite probable to be exogenous) decay much faster than usual (endogenous) fluctuations of volatility.