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Robust Detection of Lead-Lag Relationships in Lagged Multi-Factor Models

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  • Yichi Zhang
  • Mihai Cucuringu
  • Alexander Y. Shestopaloff
  • Stefan Zohren

Abstract

In multivariate time series systems, key insights can be obtained by discovering lead-lag relationships inherent in the data, which refer to the dependence between two time series shifted in time relative to one another, and which can be leveraged for the purposes of control, forecasting or clustering. We develop a clustering-driven methodology for robust detection of lead-lag relationships in lagged multi-factor models. Within our framework, the envisioned pipeline takes as input a set of time series, and creates an enlarged universe of extracted subsequence time series from each input time series, via a sliding window approach. This is then followed by an application of various clustering techniques, (such as k-means++ and spectral clustering), employing a variety of pairwise similarity measures, including nonlinear ones. Once the clusters have been extracted, lead-lag estimates across clusters are robustly aggregated to enhance the identification of the consistent relationships in the original universe. We establish connections to the multireference alignment problem for both the homogeneous and heterogeneous settings. Since multivariate time series are ubiquitous in a wide range of domains, we demonstrate that our method is not only able to robustly detect lead-lag relationships in financial markets, but can also yield insightful results when applied to an environmental data set.

Suggested Citation

  • Yichi Zhang & Mihai Cucuringu & Alexander Y. Shestopaloff & Stefan Zohren, 2023. "Robust Detection of Lead-Lag Relationships in Lagged Multi-Factor Models," Papers 2305.06704, arXiv.org, revised Sep 2023.
  • Handle: RePEc:arx:papers:2305.06704
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    References listed on IDEAS

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    3. Giuseppe Buccheri & Fulvio Corsi & Stefano Peluso, 2021. "High-Frequency Lead-Lag Effects and Cross-Asset Linkages: A Multi-Asset Lagged Adjustment Model," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 39(3), pages 605-621, July.
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