Memory effects in stock price dynamics: evidences of technical trading
Technical trading represents a class of investment strategies for Financial Markets based on the analysis of trends and recurrent patterns of price time series. According standard economical theories these strategies should not be used because they cannot be profitable. On the contrary it is well-known that technical traders exist and operate on different time scales. In this paper we investigate if technical trading produces detectable signals in price time series and if some kind of memory effect is introduced in the price dynamics. In particular we focus on a specific figure called supports and resistances. We first develop a criterion to detect the potential values of supports and resistances. As a second step, we show that memory effects in the price dynamics are associated to these selected values. In fact we show that prices more likely re-bounce than cross these values. Such an effect is a quantitative evidence of the so-called self-fulfilling prophecy that is the self-reinforcement of agents' belief and sentiment about future stock prices' behavior.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jean-Philippe Bouchaud & Marc Mezard & Marc Potters, 2002. "Statistical properties of stock order books: empirical results and models," Science & Finance (CFM) working paper archive 0203511, Science & Finance, Capital Fund Management.
- M. Cristelli & L. Pietronero & A. Zaccaria, 2011. "Critical Overview of Agent-Based Models for Economics," Papers 1101.1847, arXiv.org.
- G. Caldarelli & M. Marsili & Y. -C. Zhang, 1997. "A Prototype Model of Stock Exchange," Papers cond-mat/9709118, arXiv.org.
- V. Alfi & M. Cristelli & L. Pietronero & A. Zaccaria, 2008. "Minimal Agent Based Model for Financial Markets II: Statistical Properties of the Linear and Multiplicative Dynamics," Papers 0808.3565, arXiv.org.
- Marc Potters & Jean-Philippe Bouchaud, 2002. "More statistical properties of order books and price impact," Science & Finance (CFM) working paper archive 0210710, Science & Finance, Capital Fund Management.
- M. Cristelli & V. Alfi & L. Pietronero & A. Zaccaria, 2010.
"Liquidity crisis, granularity of the order book and price fluctuations,"
The European Physical Journal B - Condensed Matter and Complex Systems,
Springer;EDP Sciences, vol. 73(1), pages 41-49, January.
- M. Cristelli & V. Alfi & L. Pietronero & A. Zaccaria, 2009. "Liquidity Crisis, Granularity of the Order Book and Price Fluctuations," Papers 0902.4159, arXiv.org, revised Jul 2009.
- Lillo Fabrizio & Farmer J. Doyne, 2004.
"The Long Memory of the Efficient Market,"
Studies in Nonlinear Dynamics & Econometrics,
De Gruyter, vol. 8(3), pages 1-35, September.
- Matthieu Wyart & Jean-Philippe Bouchaud & Julien Kockelkoren & Marc Potters & Michele Vettorazzo, 2008. "Relation between bid-ask spread, impact and volatility in order-driven markets," Quantitative Finance, Taylor & Francis Journals, vol. 8(1), pages 41-57.
- Lux, T. & M. Marchesi, . "Scaling and Criticality in a Stochastic Multi-Agent Model of a Financial Market," Discussion Paper Serie B 438, University of Bonn, Germany, revised Jul 1998.
- Jean-Philippe Bouchaud & Marc Mezard & Marc Potters, 2002. "Statistical properties of stock order books: empirical results and models," Quantitative Finance, Taylor & Francis Journals, vol. 2(4), pages 251-256.
- Ilaria Bordino & Stefano Battiston & Guido Caldarelli & Matthieu Cristelli & Antti Ukkonen & Ingmar Weber, 2011. "Web search queries can predict stock market volumes," Papers 1110.4784, arXiv.org, revised Jun 2012.
- J. Doyne Farmer & Laszlo Gillemot & Fabrizio Lillo & Szabolcs Mike & Anindya Sen, 2004.
"What really causes large price changes?,"
Taylor & Francis Journals, vol. 4(4), pages 383-397.
- Jean-Philippe Bouchaud & J. Doyne Farmer & Fabrizio Lillo, 2008. "How markets slowly digest changes in supply and demand," Papers 0809.0822, arXiv.org.
- Potters, Marc & Bouchaud, Jean-Philippe, 2003. "More statistical properties of order books and price impact," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 324(1), pages 133-140.
- V. Alfi & M. Cristelli & L. Pietronero & A. Zaccaria, 2008. "Mechanisms of Self-Organization and Finite Size Effects in a Minimal Agent Based Model," Papers 0811.4256, arXiv.org.
- V. Alfi & M. Cristelli & L. Pietronero & A. Zaccaria, 2008. "Minimal Agent Based Model for Financial Markets I: Origin and Self-Organization of Stylized Facts," Papers 0808.3562, arXiv.org.
When requesting a correction, please mention this item's handle: RePEc:arx:papers:1110.5197. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators)
If references are entirely missing, you can add them using this form.