Testing the Effect of Technical Analysis on Market Quality and Order Book Dynamics

Applied Economics, Volume 51, 2019 - Issue 18, 1947-1976.

36 Pages Posted: 21 Jan 2021

See all articles by Paolo Mazza

Paolo Mazza

IESEG School of Management; LEM CNRS 9221

Mikael Petitjean

Catholic University of Lille - IÉSEG School of Management, Lille Campus; Lille Economie & Management (LEM) UMR 9221; Louvain School of Management (UCL); Catholic University of Louvain (UCL) - Louvain Finance (LFIN)

Date Written: June 27, 2018

Abstract

We find empirical support for the theoretical finding in agent-based models of limit order book markets that the effect of technical trading on market quality is not positive. When signals occur, technical traders lower liquidity as proxied by the relative spread, the effective spread, the realized spread, the dispersion and the slope in the order book. Technical trading is also found to be accompanied by rising volatility. There is overall strong empirical support against the hypothesis that technical trading has no effect on order book dynamics.

Keywords: Agent-based model, Liquidity, Technical Analysis, Limit Order Market

JEL Classification: G14, D82, C5

Suggested Citation

Mazza, Paolo and Petitjean, Mikael, Testing the Effect of Technical Analysis on Market Quality and Order Book Dynamics (June 27, 2018). Applied Economics, Volume 51, 2019 - Issue 18, 1947-1976., Available at SSRN: https://ssrn.com/abstract=3769103 or http://dx.doi.org/10.2139/ssrn.3769103

Paolo Mazza

IESEG School of Management ( email )

3 Rue de la Digue
Office: A321
Lille, 59 59000
France

HOME PAGE: http://https://sites.google.com/site/paolomazzaphd/

LEM CNRS 9221 ( email )

Mikael Petitjean (Contact Author)

Catholic University of Lille - IÉSEG School of Management, Lille Campus ( email )

3 rue de la Digue
Lille, 59000
France
0032497301266 (Phone)
59000 (Fax)

Lille Economie & Management (LEM) UMR 9221 ( email )

Lille
France

Louvain School of Management (UCL) ( email )

Belgium

Catholic University of Louvain (UCL) - Louvain Finance (LFIN) ( email )

34 Voie du Roman Pays - L1.03.01
Louvain-la-Neuve, 1348
Belgium

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