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Commonality and contrarian trading among algorithmic traders

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  • Arumugam, Devika
  • Krishna Prasanna, P.

Abstract

We examine the trading behavior of two heterogeneous groups of Algorithmic Traders (ATs), namely High-Frequency Traders (HFTs) and Buy-side Algorithmic Traders (BATs). We find that these two groups exhibit within-group and between-group commonality in trading volumes, wherein within-group commonality of BATs is higher than that of HFTs. Also, there exists within-group commonality in directional measures of trade execution. We find new evidence of between-group contrarian trading behavior, which is more pronounced among BATs than HFTs. The presence of within-group commonality and between-group contrarian trading among ATs ensures market stability and price discovery.

Suggested Citation

  • Arumugam, Devika & Krishna Prasanna, P., 2021. "Commonality and contrarian trading among algorithmic traders," Journal of Behavioral and Experimental Finance, Elsevier, vol. 30(C).
    • Handle: RePEc:eee:beexfi:v:30:y:2021:i:c:s2214635021000393
    DOI: 10.1016/j.jbef.2021.100495
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    References listed on IDEAS

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    Cited by:

    1. Arumugam, Devika, 2023. "Algorithmic trading: Intraday profitability and trading behavior," Economic Modelling, Elsevier, vol. 128(C).
    2. Chien-Liang Chiu & Paoyu Huang & Min-Yuh Day & Yensen Ni & Yuhsin Chen, 2024. "Mastery of “Monthly Effects”: Big Data Insights into Contrarian Strategies for DJI 30 and NDX 100 Stocks over a Two-Decade Period," Mathematics, MDPI, vol. 12(2), pages 1-22, January.
    3. Arumugam, Devika & Prasanna, P. Krishna & Marathe, Rahul R., 2023. "Do algorithmic traders exploit volatility?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 37(C).

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    More about this item

    Keywords

    Algorithmic trading; High-frequency trading; Commonality; Contrarian; NSE;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G40 - Financial Economics - - Behavioral Finance - - - General

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