Nonlinear Price Dynamics of S&P 100 Stocks
Physica A: Statistical Mechanics and its Applications, Forthcoming
47 Pages Posted: 10 Jul 2019
Date Written: July 9, 2019
The methodology presented provides a quantitative way to characterize investor behavior and price dynamics within a particular asset class and time period. The methodology is applied to a data set consisting of over 250,000 data points of the S&P 100 stocks during 2004-2018. Using a two-way fixed-effects model, we uncover trader motivations including evidence of both under- and overreaction within a unified setting. A nonlinear relationship is found between return and trend suggesting a small, positive trend increases the return, while a larger one tends to decrease it. The shape parameters of the nonlinearity quantify trader motivation to buy into trends or wait for bargains. The methodology allows the testing of any behavioral finance bias or technical analysis concept.
Keywords: S&P stocks, Trend, Nonlinear dynamics, Volume
JEL Classification: G02, G12, G17
Suggested Citation: Suggested Citation