Outsider Trading
Dorje C. Brody, Julian Brody, Bernhard K. Meister, Matthew F. Parry

TL;DR
This paper investigates market inefficiencies in the Japanese stock market by analyzing publicly available internet data, demonstrating that outsiders can develop profitable trading strategies based on information disparities.
Contribution
It introduces an information-based model that replicates outsider trading strategies and quantifies information disparity using blog data in the Japanese stock market.
Findings
Identifies market inefficiency using blog data
Develops a model to estimate information disparity
Shows outsiders can profit from publicly available information
Abstract
In this paper we examine inefficiencies and information disparity in the Japanese stock market. By carefully analysing information publicly available on the internet, an `outsider' to conventional statistical arbitrage strategies--which are based on market microstructure, company releases, or analyst reports--can nevertheless pursue a profitable trading strategy. A large volume of blog data is used to demonstrate the existence of an inefficiency in the market. An information-based model that replicates the trading strategy is developed to estimate the degree of information disparity.
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Taxonomy
TopicsFinancial Markets and Investment Strategies · Stock Market Forecasting Methods · Complex Systems and Time Series Analysis
