Volume ratio prediction model during Price Limits Periods in China stock markets

Abstract

Algorithmic trading has become the major trading mechanism and one of the core technologies of electronic transactions globally. In USA, above 90% of electronic trading volumes has been done by algorithmic trading systems. However, algorithmic trading is still new in China capital market, only less than 10% of the volume has been done by algorithmic trading systems. With the rapid development of Chinese capital market and QFII capacity expansion, it will be the major trading mechanism in China. While being introduced into Chinese markets, it has to adapt to some special local trading rules, such as: Price limits (limit up and limit down). Because of the particular preferences by the Chinese investors, the market has a unique morphology forms in price limits. How to improve the model of price limits in China's algorithmic trading is the main focus of this research, especially under recent increasing volatility of global stock market in early 2020. This paper proposes a novel volume ratio prediction model, which can obtain a more accurate value of the price limit trading volume distribution. And an improved algorithmic trading logic based this model is proposed and proves its effectiveness.