2020/04/13 by P. B. Lerner, Lerner, P. B.
Decision Sciences · Economics, Econometrics and Finance · #Complex Systems and Time Series Analysis #FOS: Economics and business #Financial Markets and Investment Strategies #Statistical Finance (q-fin.ST) #Stock Market Forecasting Methods #Trading and Market Microstructure (q-fin.TR)
paper · pdf · doi:10.48550/arxiv.2004.06200
openalex publication_date 2020/04/13 · openalex created_date 2020/04/24 · openalex updated_date 2026/07/28
This paper proposes and motivates a dynamical model of the Chinese stock market based on a linear regression in a dual state space connected to the original state space of correlations between the volume-at-price buckets by a Fourier transform. We apply our model to the price migration of executed orders by the Chinese brokerages in 2009-2010. Regulatory brokerage tapes were used to conduct a natural experiment assuming that tapes correspond to randomly assigned, informed and uninformed traders. Our analysis demonstrated that customers' orders were tightly correlated--in a highly nonlinear sense of the neural networks--with the Chinese market sentiment index, significantly correlated with the stock returns and exhibited no correlation with the bellwether bond of the Bank of China. We did not notice any spike of illiquidity transmitting from the US Flash Crash in May 2010 to trading in China.