A Security Price Volatile Trading Conditioning Model

TL;DR

This paper introduces a theoretical trading conditioning model based on transaction volume-price distributions to analyze market psychological behavior and volatility, with empirical testing on China's stock market revealing key correlations.

Contribution

It presents a novel model linking transaction volume and price volatility to market psychology, enabling simultaneous testing of disposition effect and herd behavior.

Findings

Positive correlation between mean return rate and trading conditioning intensity change

No significant correlation before and after bubble crashes

Negative correlation during rising bull markets

Abstract

We develop a theoretical trading conditioning model subject to price volatility and return information in terms of market psychological behavior, based on analytical transaction volume-price probability wave distributions in which we use transaction volume probability to describe price volatility uncertainty and intensity. Applying the model to high frequent data test in China stock market, we have main findings as follows: 1) there is, in general, significant positive correlation between the rate of mean return and that of change in trading conditioning intensity; 2) it lacks significance in spite of positive correlation in two time intervals right before and just after bubble crashes; and 3) it shows, particularly, significant negative correlation in a time interval when SSE Composite Index is rising during bull market. Our model and findings can test both disposition effect and herd behavior simultaneously, and explain excessive trading (volume) and other anomalies in stock market.