Nonrandom price movements

Dilip B. Madan and King Wang

Finance Research Letters, 2016, vol. 17, issue C, 103-109

Abstract: Local peaks and valleys are constructed as time points with prices respectively above and below the two adjacent values. We demonstrate, quite generally, that under stylized financial model assumptions, the expected inter peak and inter valley times should be 4 days. The times observed in data are statistically significantly below this value, possibly questioning stylized assumptions. Our investigation thereby lends some support to the presence of mean reversion and the related activities of technical and algorithmic traders seeking to benefit from such a structure.

Keywords: Variance gamma; Geometric Brownian motion; Momentum; Mean reversion (search for similar items in EconPapers)
JEL-codes: G10 G12 G13 G14 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:17:y:2016:i:c:p:103-109

DOI: 10.1016/j.frl.2016.02.003

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