Compensating asynchrony effects in the calculation of financial correlations
AbstractWe present a method to compensate statistical errors in the calculation of correlations on asynchronous time series. The method is based on the assumption of an underlying time series. We set up a model and apply it to financial data to examine the decrease of calculated correlations towards smaller return intervals (Epps effect). We show that this statistical effect is a major cause of the Epps effect. Hence, we are able to quantify and to compensate it using only trading prices and trading times.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 0910.2909.
Date of creation: Oct 2009
Date of revision: Jul 2010
Publication status: Published in Physica A Vol. 389, No. 4 (2010)
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Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-10-17 (All new papers)
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