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Title: Chasing trends at the micro-level: The effect of technical trading on order book dynamics
Authors: Ladley, Daniel
Chiarella, Chiarella
First Published: 15-Dec-2015
Publisher: Elsevier
Citation: Journal of Banking and Finance, 2016, 72 Supplement, pp. S119–S131
Abstract: Technical traders attempt to exploit trends in market prices and the order flow. Despite this little is known about how these traders behave in a micro-structure context. We consider a model of an order book based financial market. The market contains two groups: informed traders and technical traders. A numerical technique is used to identify a Markov perfect equilibrium of the trading game and so determine the optimal strategies. We find that technical trading rules are profitable and allow traders to increase their returns. The effect of technical traders on the market, however, is ambiguous. They decrease volatility and pricing errors but also increase trading costs despite primarily acting as liquidity suppliers.
DOI Link: 10.1016/j.jbankfin.2015.11.019
ISSN: 0378-4266
eISSN: 1872-6372
Version: Post-print
Status: Peer-reviewed
Type: Journal Article
Rights: Copyright © 2016 Elsevier. Deposited with reference to the publisher’s archiving policy available on the SHERPA/RoMEO website. Following the embargo period this article is distributed under the terms of the Creative Commons Attribution-Non Commercial-No Derivatives License ( ), which permits use and distribution in any medium, provided the original work is properly cited, the use is non-commercial and no modifications or adaptations are made.
Description: The file associated with this record is under embargo until 18 months after publication, in accordance with the publisher's self-archiving policy. The full text may be available through the publisher links provided above.
Appears in Collections:Published Articles, Dept. of Economics

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