Program Trading and Intraday Volatility

Posted: 14 May 2000

See all articles by Lawrence Harris

Lawrence Harris

University of Southern California - Marshall School of Business - Finance and Business Economics Department; Institute for Quantitative Research in Finance (the Q-Group); Financial Economists Roundtable; Interactive Brokers, Inc. (IBKR)

George Sofianos

affiliation not provided to SSRN

Abstract

Program trading and intraday changes in the S&P 500 Index are correlated. Future prices and, to a lesser extent, cash prices lead program trades. Index arbitrage trades are followed by an immediate change in the cash index, which ultimately reverses slightly. No reversal follows non- arbitrage trades. The cumulative index changes associated with buy and sell trades and with arbitrage and non- arbitrage trades all are similar. Price decomposition suggest that the results are not due to microstructure effects. Program trades in this 1989-1990 sample do not appear to have created short-term liquidity problems. The results are stable within the sample.

JEL Classification: G13

Suggested Citation

Harris, Lawrence and Sofianos, George, Program Trading and Intraday Volatility. Available at SSRN: https://ssrn.com/abstract=5473

Lawrence Harris (Contact Author)

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States
213-740-6496 (Phone)
213-740-6650 (Fax)

Institute for Quantitative Research in Finance (the Q-Group) ( email )

Q Group
P.O. Box 1540
Valley Stream, NY 11582
United States

HOME PAGE: http://www.q-group.org

Financial Economists Roundtable ( email )

United States
3232441154 (Phone)

HOME PAGE: http://www.financialeconomistsroundtable.com/

Interactive Brokers, Inc. (IBKR) ( email )

209 South LaSalle Street
10th Floor
Chicago, IL 60604
United States

George Sofianos

affiliation not provided to SSRN

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