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A Security Price Volatile Trading Conditioning Model

Author

Listed:
  • Leilei Shi

    (Complex System Research Group, Department of Modern Physics University of Science and Technology of China)

  • Yiwen Wang

    (Department of Finance, Beijing University of Aeronautics and Astronautics)

  • Ding Chen

    (Harvest Fund Management Co. Ltd)

  • Liyan Han

    (Department of Finance, Beijing University of Aeronautics and Astronautics)

  • Yan Piao

    (Department of Physics, Beijing University of Aeronautics and Astronautics)

  • Chengling Gou

    (Department of Physics, Beijing University of Aeronautics and Astronautics)

Abstract

We develop a theoretical trading conditioning model subject to price volatility and return information in terms of market psychological behavior, based on analytical transaction volume-price probability wave distributions in which we use transaction volume probability to describe price volatility uncertainty and intensity. Applying the model to high frequent data test in China stock market, we have main findings as follows: 1) there is, in general, significant positive correlation between the rate of mean return and that of change in trading conditioning intensity; 2) it lacks significance in spite of positive correlation in two time intervals right before and just after bubble crashes; and 3) it shows, particularly, significant negative correlation in a time interval when SSE Composite Index is rising during bull market. Our model and findings can test both disposition effect and herd behavior simultaneously, and explain excessive trading (volume) and other anomalies in stock market.

Suggested Citation

  • Leilei Shi & Yiwen Wang & Ding Chen & Liyan Han & Yan Piao & Chengling Gou, 2010. "A Security Price Volatile Trading Conditioning Model," Papers 1001.0656, arXiv.org, revised Feb 2010.
    • Handle: RePEc:arx:papers:1001.0656
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