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High-frequency stock linkage and multi-dimensional stationary processes

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  • Wang, Xi
  • Bao, Si
  • Chen, Jingchao

Abstract

In recent years, China’s stock market has experienced dramatic fluctuations; in particular, in the second half of 2014 and 2015, the market rose sharply and fell quickly. Many classical financial phenomena, such as stock plate linkage, appeared repeatedly during this period. In general, these phenomena have usually been studied using daily-level data or minute-level data. Our paper focuses on the linkage phenomenon in Chinese stock 5-second-level data during this extremely volatile period. The method used to select the linkage points and the arbitrage strategy are both based on multi-dimensional stationary processes. A new program method for testing the multi-dimensional stationary process is proposed in our paper, and the detailed program is presented in the paper’s appendix. Because of the existence of the stationary process, the strategy’s logarithmic cumulative average return will converge under the condition of the strong ergodic theorem, and this ensures the effectiveness of the stocks’ linkage points and the more stable statistical arbitrage strategy.

Suggested Citation

  • Wang, Xi & Bao, Si & Chen, Jingchao, 2017. "High-frequency stock linkage and multi-dimensional stationary processes," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 468(C), pages 70-83.
    • Handle: RePEc:eee:phsmap:v:468:y:2017:i:c:p:70-83
    DOI: 10.1016/j.physa.2016.10.019
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    Cited by:

    1. Li, Long & Bao, Si & Chen, Jing-Chao & Jiang, Tao, 2019. "A method to get a more stationary process and its application in finance with high-frequency data of Chinese index futures," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 525(C), pages 1405-1417.

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