Graduation Year

2021

Date of Submission

5-2021

Document Type

Campus Only Senior Thesis

Degree Name

Bachelor of Arts

Reader 1

Eric Hughson

Abstract

One of the principal risks faced by market makers is the risk of holding positions overnight. This risk rises with position size and potentially with market volatility. In periods of high volume and high volatility, such as during the early stages of the coronavirus pandemic, market makers were expected to take large intradaily positions. To balance the increased risk, these market makers, to take these positions must have expected increased intradaily profits from them. For the positions to be more profitable in expectation during periods of high volume and volatility, prices must then exhibit larger intradaily reversals. I test this hypothesis and find that equity prices reverse more on days with heightened volatility but reverse less as the spike size and dip size increase. Equities that spike reverse the least on Fridays and dips reverse the most on Fridays, relative to the other days of the week.

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This thesis is restricted to the Claremont Colleges current faculty, students, and staff.

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