• Print
  • Email
  • Share

Economic Perspectives, 18, 3rd, No. 4, July 1994
Does program trading cause stock prices to overreact?
This article examines whether program trading should be classified as a type of noise trading or as a type of information trading. If levels of program trading increase the likelihood that a price reversal will occur, we can conclude that program trading is a type of noise trading. On the other hand, if program trading is unrelated to the likelihood of encountering a price reversal, then program trading should be categorized as information trading. I examine a 34-month period of daily program trading activity and stock prices and use a logit specification to consider the proposition that trading activity changes the probability of stock price reversals. The results do not support the claim that program trading causes stock price overreactions.


Federal Reserve Bank of Chicago, 230 South LaSalle Street, Chicago, Illinois 60604-1413, USA. Tel. (312) 322-5322

Copyright © 2016. All rights reserved.

Please review our Privacy Policy | Legal Notices