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Program Trading and Intraday Volatility

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  • Harris, Lawrence
  • Sofianos, George
  • Shapiro, James E
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    Abstract

    Program trading and intraday changes in the S&P 500 Index are correlated. Future prices and, to a lesser extent, cash prices lead program trades. Index extent, cash prices lead program trades. Index arbitrage trades are followed by an immediate change in the cash index, which ultimately reverses slightly. No reversal follows nonarbitrage trades. The cumulative index changes associated with buy-and-sell trades and with arbitrage and nonarbitrage trades all are similar. Price decompositions suggest that the results are not due to microstructure effects. Program trades in this 1989-90 sample do not seem to have created major short-term liquidity problems. The results are stable within the sample. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

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    Bibliographic Info

    Article provided by Society for Financial Studies in its journal Review of Financial Studies.

    Volume (Year): 7 (1994)
    Issue (Month): 4 ()
    Pages: 653-85

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    Handle: RePEc:oup:rfinst:v:7:y:1994:i:4:p:653-85

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    Cited by:
    1. Anna Calamia, 1999. "Market Microstructure: Theory and Empirics," LEM Papers Series 1999/19, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    2. Lucy F. Ackert & Yisong S. Tian, 1999. "Efficiency in index options markets and trading in stock baskets," Working Paper 99-5, Federal Reserve Bank of Atlanta.
    3. de Jong, Frank & Nijman, Theo, 1997. "High frequency analysis of lead-lag relationships between financial markets," Journal of Empirical Finance, Elsevier, vol. 4(2-3), pages 259-277, June.
    4. Joel Hasbrouck & Duane J. Seppi, 1998. "Common Factors in Prices, Order Flows and Liquidity," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-011, New York University, Leonard N. Stern School of Business-.
    5. M. -W. Hung & C. -F. Lee & L. -C. So, 2003. "Impact of foreign-listed single stock futures on the domestic underlying stock markets," Applied Economics Letters, Taylor & Francis Journals, vol. 10(9), pages 567-574.
    6. Corwin, Shane A. & Lipson, Marc L., 2011. "Order characteristics and the sources of commonality in prices and liquidity," Journal of Financial Markets, Elsevier, vol. 14(1), pages 47-81, February.
    7. Joel Hasbrouck, 1999. "Trading Fast and Slow: Security Market Events in Real Time," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-012, New York University, Leonard N. Stern School of Business-.
    8. Joseph K.W. Fung, 2006. "Order Imbalance and the Pricing of Index Futures," Working Papers 132006, Hong Kong Institute for Monetary Research.
    9. Fung, Joseph K. W. & Mok, Henry M. K., 2003. "Early unwinding of options-futures arbitrage with bid/ask quotations and transaction prices," Global Finance Journal, Elsevier, vol. 14(2), pages 121-133, July.
    10. Hasbrouck, Joel, 1996. "Order characteristics and stock price evolution An application to program trading," Journal of Financial Economics, Elsevier, vol. 41(1), pages 129-149, May.
    11. Hasbrouck, Joel & Seppi, Duane J., 2001. "Common factors in prices, order flows, and liquidity," Journal of Financial Economics, Elsevier, vol. 59(3), pages 383-411, March.
    12. Warren Bailey & Lin Zheng & Yinggang Zhou, 2012. "What Makes the VIX Tick?," Working Papers 222012, Hong Kong Institute for Monetary Research.

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