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Stock Price Clustering and Discreteness: The "Compass Rose" and Predictability

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  • Constantinos E. Vorlow

Abstract

In this letter we investigate the information provided by the "compass rose" (Crack, T.F. and Ledoit, O. (1996), Journal of Finance, 51(2), pg. 751-762) patterns revealed in phase portraits of daily stock returns. It has been initially suggested that the compass rose is just a manifestation of price clustering and discreteness and the tick size, factors that can affect the unbiasedness of an array of statistical tests based on stock returns. We show that this may not entirely be the case.

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Paper provided by arXiv.org in its series Papers with number cond-mat/0408013.

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Date of creation: Aug 2004
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Handle: RePEc:arx:papers:cond-mat/0408013

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  1. Wang, Huaiqing & Wang, Chen, 2002. "Visibility of the compass rose in financial asset returns: A quantitative study," Journal of Banking & Finance, Elsevier, Elsevier, vol. 26(6), pages 1099-1111, June.
  2. Andrew W. Lo & A. Craig MacKinlay, 1987. "Stock Market Prices Do Not Follow Random Walks: Evidence From a Simple Specification Test," NBER Working Papers 2168, National Bureau of Economic Research, Inc.
  3. Antonios Antoniou & Constantinos E. Vorlow, 2004. "Price Clustering and Discreteness: Is there Chaos behind the Noise?," Papers cond-mat/0407471, arXiv.org.
  4. Wang, Eliza & Hudson, Robert & Keasey, Kevin, 2000. "Tick size and the compass rose: further insights," Economics Letters, Elsevier, Elsevier, vol. 68(2), pages 119-125, August.
  5. repec:cup:cbooks:9780521586412 is not listed on IDEAS
  6. Amilon, Henrik, 2003. "GARCH estimation and discrete stock prices: an application to low-priced Australian stocks," Economics Letters, Elsevier, Elsevier, vol. 81(2), pages 215-222, November.
  7. Brock, William A & Baek, Ehung G, 1991. "Some Theory of Statistical Inference for Nonlinear Science," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 58(4), pages 697-716, July.
  8. Fang, Yue, 2002. "The compass rose and random walk tests," Computational Statistics & Data Analysis, Elsevier, Elsevier, vol. 39(3), pages 299-310, May.
  9. Catherine Kyrtsou & Michel Terraza, 2003. "Is it Possible to Study Chaotic and ARCH Behaviour Jointly? Application of a Noisy Mackey–Glass Equation with Heteroskedastic Errors to the Paris Stock Exchange Returns Series," Computational Economics, Society for Computational Economics, Society for Computational Economics, vol. 21(3), pages 257-276, June.
  10. An-Sing Chen, 1997. "The square compass rose: the evidence from Taiwan," Journal of Multinational Financial Management, Elsevier, Elsevier, vol. 7(2), pages 127-144, June.
  11. Antoniou, Antonios & Vorlow, Constantinos E., 2004. "Recurrence quantification analysis of wavelet pre-filtered index returns," Physica A: Statistical Mechanics and its Applications, Elsevier, Elsevier, vol. 344(1), pages 257-262.
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Cited by:
  1. Katarzyna Bien & Ingmar Nolte & Winfried Pohlmeier, 2007. "An Inflated Multivariate Integer Count Hurdle Model: An Application to Bid and Ask Quote Dynamics," CoFE Discussion Paper, Center of Finance and Econometrics, University of Konstanz 07-04, Center of Finance and Econometrics, University of Konstanz.
  2. Katarzyna Bien & Ingmar Nolte & Winfried Pohlmeier, 2006. "A Multivariate Integer Count Hurdle Model: Theory and Application to Exchange Rate Dynamics," CoFE Discussion Paper, Center of Finance and Econometrics, University of Konstanz 06-06, Center of Finance and Econometrics, University of Konstanz.

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