Stock market behaviour can be predicted

University of Adelaide

25 July 2016
| By Oksana Patron |
image
image
expand image

The timing of electronic orders on the stock market can be mathematically described, and is a "crucial step" towards predicting movements on stock exchanges, according to two physicists from the University of Adelaide.

The Australian scientists, who worked in collaboration with colleagues in the German finance sector, have found some mathematically-proven similarities between stock market behaviour and the lifetime of a light bulb and saw it as a "crucial first step" towards predicting dramatic movements on the stock exchange that could lead to stock market crashes.

The study simply analysed the arrival and cancellation times of many millions of buy and sell ‘limit orders' from seven different stocks on the electronic orderbook of the London stock Exchange for four months.

Australian Laureate Fellow and Elder Professor of Physics at the University of Adelaide, Anthony Thomas, explained that they had looked at orders that came extremely close together, less than 10 milliseconds apart, and a huge volume of orders which were placed and withdrawn that did not satisfy any rational formula.

"It appears that in these cases, what's going on is some attempted market manipulation through fake orders to try and suggest that the market is moving when it's not," he said.

"However, when we excluded all the orders of less than 10 milliseconds intervals, we found the market actually shows amazingly rational behaviour. In fact the pattern of placement and removal of orders then follows a well-known probability distribution, the Weibull distribution.

"This is a major discovery, telling us about the dynamics of the electronic orderbook."

According to research associate, Dr Ayse Kizilersu, this information could be used to manage the risks associated with investing and can help stock market regulators detect irregularities in movements which leave the small investors at disadvantage.

The researchers have confirmed they plan to continue their research looking at price movements.

Read more about:

AUTHOR

Recommended for you

sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry

MARKET INSIGHTS

This verdict highlights something deeply wrong and rotten at the heart of the FSCP. We are witnessing a heavy-handed, op...

8 hours ago

Interesting. Would be good to know the details of the StrategyOne deal....

4 days 13 hours ago

It’s astonishing to see the FAAA now pushing for more advisers by courting "career changers" and international recruits,...

3 weeks 2 days ago

Insignia Financial has made four appointments, including three who have joined from TAL, to lead strategy and innovation in its retirement solutions for the MLC brand....

2 weeks 4 days ago

A former Brisbane financial adviser has been charged with 26 counts of dishonest conduct regarding a failure to disclose he would receive substantial commission payments ...

3 days 11 hours ago

Pinnacle Investment Management has announced it will acquire strategic interests in two international fund managers for $142 million....

2 days 14 hours ago