Machine over Mind? Stock price clustering in the era of algorithmic trading

Sougata Das and Palani-Rajan Kadapakkam

The North American Journal of Economics and Finance, 2020, vol. 51, issue C

Abstract: Given the rise of automated trading in the post-decimalization era, we examine time trends in price clustering for exchange traded funds (ETFs) and individual stocks during the post decimalization era. There is limited prior evidence on price clustering for portfolio securities such as ETFs. A striking feature of the evidence is the substantial reduction in clustering over the sample period for ETFs as well as for individual stocks. This decline occurs for trades of all sizes. We attribute the decline in clustering to the increasing prominence of algorithmic trading, which is immune to psychological biases.

Keywords: Price clustering; Algorithmic trading; Exchange traded funds (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:51:y:2020:i:c:s1062940818301347

DOI: 10.1016/j.najef.2018.08.014

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