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Correlations in the bond-future market

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  • Cuniberti, Gianaurelio
  • Raberto, Marco
  • Scalas, Enrico

Abstract

We analyse the time series of overnight returns for the BUND and BTP futures exchanged at LIFFE (London). The overnight returns of both assets are mapped onto a one-dimensional symbolic-dynamics random walk: The “bond walk”. During the considered period (October 1991–January 1994) the BUND-future market opened earlier than the BTP-future one. The crosscorrelations between the two bond walks, as well as estimates of the conditional probability, show that they are not independent; however each walk can be modelled by means of a trinomial probability distribution. Monte Carlo simulations confirm that it is necessary to take into account the bivariate dependence in order to properly reproduce the statistical properties of the real-world data. Various investment strategies have been devised to exploit the “prior” information obtained by the aforementioned analysis.

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Bibliographic Info

Article provided by Elsevier in its journal Physica A: Statistical Mechanics and its Applications.

Volume (Year): 269 (1999)
Issue (Month): 1 ()
Pages: 90-97

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Handle: RePEc:eee:phsmap:v:269:y:1999:i:1:p:90-97

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Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/

Related research

Keywords: Random walk; Complex systems; Financial markets;

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