[1H3-OS-8a] OS-8

[1H3-OS-8a-02] Is the occurrence of chart patterns a self-fulfilling prophecy?

〇Hayato Sakata¹, Kazuhiro Ueda² (1. Graduate School of Interdisciplinary Information Studies, The University of Tokyo, 2. Graduate School of Arts and Sciences, The University of Tokyo)

Keywords:behavioral finance, technical analysis, self-fulfilling prophecy

Technical analysis is widely used by many investors. One of them is chart pattern analysis, which uses geometric features of charts. While various explanations exist for the mechanism underlying pattern formation, this study focuses on the concept of self-fulfilling prophecy, which has been mentioned in several behavioral finance studies, and tests a new hypothesis that these patterns emerge from trading activities of many investors expecting pattern completion. Analysis of the head-and-shoulders pattern, which is one of the most recognized chart patterns, in S\&P500, BTCUSD, and EUR/USD markets reveals that (1) the frequency of pattern occurrence consistently exceeds that of random walks generated from similar price distributions, and (2) trading volume demonstrates an increasing trend prior to pattern formation across multiple time series. These findings support our hypothesis, and indicate that trading activities conducted before pattern completion may have influenced price movements in a way that facilitates pattern formation. However, this analysis alone does not establish a clear causal relationship between volume fluctuations and price movements. For future research, it is desirable to adopt an agent-based approach with artificial markets.