Program trading sparks short-term stock market chaos but stabilizes long-term.
Program trading, a trading method from the 70s, has been controversial for its impact on stock markets. A study used computer simulations to analyze the risks of program trading. They found that it can cause short-term market fluctuations but has little effect in the long term. Stock index futures can reduce price swings in the market overall. Additionally, a strategy called combination insurance can increase the expectation of selling in a pessimistic market, potentially leading to market collapse.