Advanced Search
MyIDEAS: Login

Statistical Causes For The Epps Effect In Microstructure Noise

Contents:

Author Info

  • MICHAEL C. MÜNNIX

    ()
    (Department of Physics, University of Duisburg-Essen, 47048 Dusiburg, Germany)

  • RUDI SCHÄFER

    (Department of Physics, University of Duisburg-Essen, 47048 Dusiburg, Germany)

  • THOMAS GUHR

    (Department of Physics, University of Duisburg-Essen, 47048 Dusiburg, Germany)

Registered author(s):

    Abstract

    We present two statistical causes for the distortion of correlations on high-frequency financial data. We demonstrate that the asynchrony of trades as well as the decimalization of stock prices has a large impact on the decline of the correlation coefficients towards smaller return intervals (Epps effect). These distortions depend on the properties of the time series and are of purely statistical origin. We are able to present parameter-free compensation methods, which we validate in a model setup. Furthermore, the compensation methods are applied to high-frequency empirical data from the NYSE's TAQ database. A major fraction of the Epps effect can be compensated. The contribution of the presented causes is particularly high for stocks that are traded at low prices.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.worldscinet.com/cgi-bin/details.cgi?type=pdf&id=pii:S0219024911006838
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: http://www.worldscinet.com/cgi-bin/details.cgi?type=html&id=pii:S0219024911006838
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal International Journal of Theoretical and Applied Finance.

    Volume (Year): 14 (2011)
    Issue (Month): 08 ()
    Pages: 1231-1246

    as in new window
    Handle: RePEc:wsi:ijtafx:v:14:y:2011:i:08:p:1231-1246

    Contact details of provider:
    Web page: http://www.worldscinet.com/ijtaf/ijtaf.shtml

    Order Information:
    Email:

    Related research

    Keywords: Market microstructure; Epps effect; nonsynchronous trading; correlation estimation; covariance estimation; realized variance;

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:wsi:ijtafx:v:14:y:2011:i:08:p:1231-1246. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tai Tone Lim).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.