Market Instability and Technical Trading at High Frequency: Evidence from NASDAQ Stocks

Deniz Erdemlioglu, Mikael Petitjean and Nicolas Vargas

No 2021016, LIDAM Reprints LFIN from Université catholique de Louvain, Louvain Finance (LFIN)

Abstract: The promotion of financial stability is the mission of central banks and market authorities. This mission is more difficult to accomplish when trading activity is associated with financial instability in the form of intraday price jumps. While the literature has widely shown that exogenous news releases trigger these jumps, very little is known about the consequences of endogenous technical trading on market instability. Using high-frequency 5-minute data on 460 NASDAQ stocks from February to September 2017, we provide new evidence that sharp price movements during the day are also triggered by technical trading around special market configurations. When technical trading activity dominates, intraday price jumps are detected more frequently, and their direction becomes significantly predictable, particularly in small caps and in the energy sector. Our results support the view that the explanations for intraday market instability are not limited to news releases.

Keywords: Market instability; Jumps; Volatility; Trading signals; Technical analysis; High-frequency data; NASDAQ; Sectoral analysis; Small-cap stocks (search for similar items in EconPapers)
JEL-codes: C12 C14 G12 G14 (search for similar items in EconPapers)
Pages: 30
Date: 2021-09-01
Note: In: Economic Modelling, 2021, vol. 102, 105592
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Citations: View citations in EconPapers (1)

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Journal Article: Market instability and technical trading at high frequency: Evidence from NASDAQ stocks (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:ajf:louvlr:2021016

DOI: 10.1016/j.econmod.2021.105592

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