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Clustering of Stock Prices

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  • Victor Niederhoffer

    (Harvard University, Cambridge, Massachusetts)

Abstract

This study contains data that throw substantial doubt upon the applicability of the random walk model to stock prices. Samples of the books of the specialist indicate that stock market decision makers place their limit and stop orders at numbers with which they are accustomed to deal. Congestion of limit orders, in combination with the specialist's reluctance to trade for his own account, creates a situation where higher priced issues trade mainly at the integers. Six samples of two hundred low priced issues unchanged for the day, and two samples of issues stationary until noon, indicate that these prices settle at the round numbers. Intelligent trading of floor traders and specialists causes the ratio of highs to lows to be greater than 1 at 7/8 and less than 1 at 1/8.

Suggested Citation

  • Victor Niederhoffer, 1965. "Clustering of Stock Prices," Operations Research, INFORMS, vol. 13(2), pages 258-265, April.
  • Handle: RePEc:inm:oropre:v:13:y:1965:i:2:p:258-265
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    File URL: http://dx.doi.org/10.1287/opre.13.2.258
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    Cited by:

    1. repec:eee:quaeco:v:68:y:2018:i:c:p:63-72 is not listed on IDEAS
    2. Antonios Antoniou & Constantinos E. Vorlow, 2004. "Price Clustering and Discreteness: Is there Chaos behind the Noise?," Papers cond-mat/0407471, arXiv.org.
    3. Jen-Chang Liu & Mark Yeats, 2015. "The Anomaly of 28 Days Between the Ex-Dividend and Payment Dates in Taiwanese Stock Markets," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 5(9), pages 1091-1118, September.
    4. repec:eee:intfin:v:49:y:2017:i:c:p:1-14 is not listed on IDEAS
    5. Jovanovic, Franck & Schinckus, Christophe, 2017. "Econophysics and Financial Economics: An Emerging Dialogue," OUP Catalogue, Oxford University Press, number 9780190205034.
    6. Carol L. Osler, 2003. "Currency Orders and Exchange Rate Dynamics: An Explanation for the Predictive Success of Technical Analysis," Journal of Finance, American Finance Association, vol. 58(5), pages 1791-1820, October.

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