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On the origin of the Epps effect

Author

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  • Tóth, Bence
  • Kertész, János

Abstract

The Epps effect, the decrease of correlations between stock returns for short time windows, was traced back to the trading asynchronicity and to the occasional lead-lag relation between the prices. We study pairs of stocks where the latter is negligible and confirm the importance of asynchronicity but point out that alone these aspects are insufficient to give account for the whole effect.

Suggested Citation

  • Tóth, Bence & Kertész, János, 2007. "On the origin of the Epps effect," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 383(1), pages 54-58.
    • Handle: RePEc:eee:phsmap:v:383:y:2007:i:1:p:54-58
    DOI: 10.1016/j.physa.2007.04.111
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    Cited by:

    1. Lee, Sangwook & Kim, Min Jae & Kim, Soo Yong, 2011. "Interest rates factor model," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(13), pages 2531-2548.
    2. Materassi, Donatello & Innocenti, Giacomo, 2009. "Unveiling the connectivity structure of financial networks via high-frequency analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 388(18), pages 3866-3878.
    3. Nicolas Huth & Frédéric Abergel, 2010. "High frequency correlation modelling," Post-Print hal-00621244, HAL.

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