Investment Strategies Used as Spectroscopy of Financial Markets Reveal New Stylized Facts

We propose a new set of stylized facts quantifying the structure of financial markets. The key idea is to study the combined structure of both investment strategies and prices in order to open a qualitatively new level of understanding of financial and economic markets. We study the detailed order f...

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Main Authors:	Zhou, Wei-Xing, Mu, Guo-Hua, Chen, Wei, Sornette, Didier
Format:	Online
Language:	English
Published:	Public Library of Science 2011
Online Access:	https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3173398/

id	pubmed-3173398
recordtype	oai_dc
spelling	pubmed-31733982011-09-20 Investment Strategies Used as Spectroscopy of Financial Markets Reveal New Stylized Facts Zhou, Wei-Xing Mu, Guo-Hua Chen, Wei Sornette, Didier Research Article We propose a new set of stylized facts quantifying the structure of financial markets. The key idea is to study the combined structure of both investment strategies and prices in order to open a qualitatively new level of understanding of financial and economic markets. We study the detailed order flow on the Shenzhen Stock Exchange of China for the whole year of 2003. This enormous dataset allows us to compare (i) a closed national market (A-shares) with an international market (B-shares), (ii) individuals and institutions, and (iii) real traders to random strategies with respect to timing that share otherwise all other characteristics. We find in general that more trading results in smaller net return due to trading frictions, with the exception that the net return is independent of the trading frequency for A-share individual traders. We unveiled quantitative power laws with non-trivial exponents, that quantify the deterioration of performance with frequency and with holding period of the strategies used by traders. Random strategies are found to perform much better than real ones, both for winners and losers. Surprising large arbitrage opportunities exist, especially when using zero-intelligence strategies. This is a diagnostic of possible inefficiencies of these financial markets. Public Library of Science 2011-09-14 /pmc/articles/PMC3173398/ /pubmed/21935403 http://dx.doi.org/10.1371/journal.pone.0024391 Text en Zhou et al. http://creativecommons.org/licenses/by/4.0/ This is an open-access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are properly credited.
repository_type	Open Access Journal
institution_category	Foreign Institution
institution	US National Center for Biotechnology Information
building	NCBI PubMed
collection	Online Access
language	English
format	Online
author	Zhou, Wei-Xing Mu, Guo-Hua Chen, Wei Sornette, Didier
spellingShingle	Zhou, Wei-Xing Mu, Guo-Hua Chen, Wei Sornette, Didier Investment Strategies Used as Spectroscopy of Financial Markets Reveal New Stylized Facts
author_facet	Zhou, Wei-Xing Mu, Guo-Hua Chen, Wei Sornette, Didier
author_sort	Zhou, Wei-Xing
title	Investment Strategies Used as Spectroscopy of Financial Markets Reveal New Stylized Facts
title_short	Investment Strategies Used as Spectroscopy of Financial Markets Reveal New Stylized Facts
title_full	Investment Strategies Used as Spectroscopy of Financial Markets Reveal New Stylized Facts
title_fullStr	Investment Strategies Used as Spectroscopy of Financial Markets Reveal New Stylized Facts
title_full_unstemmed	Investment Strategies Used as Spectroscopy of Financial Markets Reveal New Stylized Facts
title_sort	investment strategies used as spectroscopy of financial markets reveal new stylized facts
description	We propose a new set of stylized facts quantifying the structure of financial markets. The key idea is to study the combined structure of both investment strategies and prices in order to open a qualitatively new level of understanding of financial and economic markets. We study the detailed order flow on the Shenzhen Stock Exchange of China for the whole year of 2003. This enormous dataset allows us to compare (i) a closed national market (A-shares) with an international market (B-shares), (ii) individuals and institutions, and (iii) real traders to random strategies with respect to timing that share otherwise all other characteristics. We find in general that more trading results in smaller net return due to trading frictions, with the exception that the net return is independent of the trading frequency for A-share individual traders. We unveiled quantitative power laws with non-trivial exponents, that quantify the deterioration of performance with frequency and with holding period of the strategies used by traders. Random strategies are found to perform much better than real ones, both for winners and losers. Surprising large arbitrage opportunities exist, especially when using zero-intelligence strategies. This is a diagnostic of possible inefficiencies of these financial markets.
publisher	Public Library of Science
publishDate	2011
url	https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3173398/
_version_	1611475695929655296

Investment Strategies Used as Spectroscopy of Financial Markets Reveal New Stylized Facts

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