PRESS-NEWS.org - Press Release Distribution
PRESS RELEASES DISTRIBUTION

Stock prices are predictable

Research finds stock price movements are predictable within a short window of time

2014-02-04
(Press-News.org) Contact information: Tom Snee
tom-snee@uiowa.edu
319-541-8434
University of Iowa
Stock prices are predictable Research finds stock price movements are predictable within a short window of time

A new study from the University of Iowa shows evidence that stock price movements are, in fact, predictable during short windows.

The study by researchers in the Tippie College of Business suggests that price movements can be predicted with a better than 50-50 accuracy for anywhere up to one minute after the stock leaves the confines of its bid-ask spread. Probabilities continue to be significant until about five minutes after it leaves the spread. By 30 minutes, the predictability window has closed.

The researchers—Nick Street, professor of management sciences, and doctoral student Michael Rechenthin—say the work questions the generally held belief that stock prices cannot be predicted. While factors like news or financial reports can move stock prices, the thinking holds, nothing inherent in a price's trend line can be used to predict where the price goes next.

"This study is the first step in showing that there is predictability, and that once a price escapes the confines of the bid-ask spread, it's showing a trend," says Rechenthin, a former Chicago Stock Exchange floor trader whose dissertation looks at building models for predicting future stock price direction. "In other words, it's more than just a coin flip where the price goes."

The study examined price movements of a single stock—the S&P 500 exchange traded stock fund (SPY)—during 2005. The stock holds all 500 Standard and Poor's stocks and is considered representative of the overall U.S. market. It's also one of the most heavily traded equities on the market, with an average of more than 90,000 transactions a day during the study period, so it provides a wealth of study data.

Their analysis found no predictability of the stock's price within the bid-ask spread—that is, the space between the price that buyers are willing to pay for a stock (the bid) and the price sellers are willing to sell it for (the ask)—as the market tries to set the value of an asset. The key to their study is what happens once traders did set a value and the price escaped that spread. Once it did escape, the study tracked the stock's price at 1, 3, 5, 10, and 20 seconds, and 1, 5, and 30 minutes.

The study found the stock price typically broke the spread after five to ten seconds, and the predictability of its subsequent movements depended on the pattern of its most recent trades. For instance, if the stock's two most recent trades were an uptick followed by a downtick, there was a 52 percent probability the trend reversed itself within five seconds. Within 20 seconds, it had a 43 percent probability of reversal.

Rechenthin says these trends are driven only by previous trade prices because other factors that drive price—news or financial statements—cannot be incorporated into a price in such a short window.

While a 52 percent probability may not seem like much of a better probability than 50 percent, Street points out that in the ocean of data that is stock trading, it is a notable increase, and something that can be exploited. The next step is to develop a working model that takes advantage of these probabilities for more efficient trading.

INFORMATION:

The study, "Using conditional probability to identify trends in intra-day high-frequency equity pricing," was published recently in the journal Physica A.



ELSE PRESS RELEASES FROM THIS DATE:

Research: It's more than just the science

2014-02-04
When putting together a team of scientists to work on a problem, it makes sense to bring together the best and brightest in the field, right? Well, maybe not. In a newly published paper, a team of researchers from ...

Researchers discover new hormone receptors to target when treating breast cancer

2014-02-04
Boston, MA – According to the United States Centers for Disease Control and Prevention, breast cancer ...

Queen's University cancer specialist's drive to improve survival rates for every European citizen

2014-02-04
Queen's University Belfast's world renowned cancer specialist, Professor Patrick Johnston, whose work has transformed cancer care in Northern Ireland, is now leading ...

Understanding fear means correctly defining fear itself, NYU's LeDoux concludes

2014-02-04
Understanding and properly studying fear is partly a matter of correctly defining fear itself, New York University neuroscientist Joseph LeDoux writes in a new essay published in Proceedings ...

GSA Today: Terrestrial analogy to ancient martian ocean?

2014-02-04
Boulder, Colorado, USA – In the February issue of GSA Today, Lorena Moscardelli of the University of Texas at Austin Jackson School of Geosciences documents evidence in support ...

New fruitfly sleep gene promotes the need to sleep

2014-02-04
PHILADELPHIA – All creatures great and small, including fruitflies, need sleep. Researchers have surmised that sleep – in any species -- is necessary for repairing proteins, consolidating ...

Long-term survival no different among those severely injured by violence vs. accident

2014-02-04
People seriously injured by violence are no more likely to die in the years after they are shot, stabbed or beaten than those who are seriously injured in accidents, Johns ...

Obesity in men could dictate future colon screenings

2014-02-04
Obesity is a known risk factor for many cancers including colon cancer, yet the reasons behind the colon cancer link have often remained unclear. A Michigan State University study is shedding more ...

EyeMusic Sensory Substitution Device enables the blind to 'see' colors and shapes

2014-02-04
Amsterdam, NL, February 4, 2014 – Using auditory or tactile stimulation, Sensory ...

Mind over matter: Beating pain and painkillers

2014-02-04
With nearly one-third of Americans suffering from chronic pain, prescription opioid painkillers have become the leading form of treatment for this debilitating condition. ...

LAST 30 PRESS RELEASES:

Exercise as an anti-ageing intervention to avoid detrimental impact of mental fatigue

UMass Amherst Nursing Professor Emerita honored as ‘Living Legend’

New guidelines aim to improve cystic fibrosis screening

Picky eaters by day, buffet by night: Butterfly, moth diets sync to plant aromas

Pennington Biomedical’s Dr. Leanne Redman honored with the E. V. McCollum Award from the American Society for Nutrition

CCNY physicists uncover electronic interactions mediated via spin waves

Researchers’ 3D-printing formula may transform future of foam

Nurture more important than nature for robotic hand

Drug-delivering aptamers target leukemia stem cells for one-two knockout punch

New study finds that over 95% of sponsored influencer posts on Twitter were not disclosed

New sea grant report helps great lakes fish farmers navigate aquaculture regulations

Strain “trick” improves perovskite solar cells’ efficiency

How GPS helps older drivers stay on the roads

Estrogen and progesterone stimulate the body to make opioids

Dancing with the cells – how acoustically levitating a diamond led to a breakthrough in biotech automation

Machine learning helps construct an evolutionary timeline of bacteria

Cellular regulator of mRNA vaccine revealed... offering new therapeutic options

Animal behavioral diversity at risk in the face of declining biodiversity

Finding their way: GPS ignites independence in older adult drivers

Antibiotic resistance among key bacterial species plateaus over time

‘Some insects are declining but what’s happening to the other 99%?’

Powerful new software platform could reshape biomedical research by making data analysis more accessible

Revealing capillaries and cells in living organs with ultrasound

American College of Physicians awards $260,000 in grants to address equity challenges in obesity care

Researchers from MARE ULisboa discover that the European catfish, an invasive species in Portugal, has a prolonged breeding season, enhancing its invasive potential

Rakesh K. Jain, PhD, FAACR, honored with the 2025 AACR Award for Lifetime Achievement in Cancer Research

Solar cells made of moon dust could power future space exploration

Deporting immigrants may further shrink the health care workforce

Border region emergency medical services in migrant emergency care

Resident physician intentions regarding unionization

[Press-News.org] Stock prices are predictable
Research finds stock price movements are predictable within a short window of time