IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/112003.html
   My bibliography  Save this paper

Introduction of the Market-Based Price Autocorrelation

Author

Listed:
  • Olkhov, Victor

Abstract

This paper considers direct dependence of the market price autocorrelation on statistical moments of the market trades as a must necessary requirement. We regard market time-series of the trade value and volume as origin of price time-series. That determines dependence of the market-based averaging of price on averaging of the trade value and volume time-series. We introduce the market-based price statistical moments as functions of the statistical moments of trade value and volume. Moving average helps define the market-based price statistical moments with time-lag and introduce the price time autocorrelation as function of time-lag statistical moments of the trade value and volume. Statistical moments of the market trade value and volume are determined by conventional frequency-based probability measures. However, the price statistical moments and the price autocorrelation in particular are determined by the market-based probability measure that differs from the conventional frequency-based price probability. That distinction leads to different treatments of the price autocorrelation via market-based and frequency-based approach. To assess market dependence of price statistical moments and price autocorrelation one should revise results founded on frequency-based approach.

Suggested Citation

  • Olkhov, Victor, 2022. "Introduction of the Market-Based Price Autocorrelation," MPRA Paper 112003, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:112003
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/112003/1/MPRA_paper_112003.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Francis X. Diebold & Georg Strasser, 2013. "On the Correlation Structure of Microstructure Noise: A Financial Economic Approach," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 80(4), pages 1304-1337.
    2. Nava, Noemi & Di Matteo, T. & Aste, Tomaso, 2018. "Dynamic correlations at different time-scales with empirical mode decomposition," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 502(C), pages 534-544.
    3. Olkhov, Victor, 2020. "Classical Option Pricing and Some Steps Further," MPRA Paper 105431, University Library of Munich, Germany, revised 28 Dec 2020.
    4. Nelson Lind & Natalia Ramondo, 2023. "Trade with Correlation," American Economic Review, American Economic Association, vol. 113(2), pages 317-353, February.
    5. Gopikrishnan, P & Plerou, V & Liu, Y & Amaral, L.A.N & Gabaix, X & Stanley, H.E, 2000. "Scaling and correlation in financial time series," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 287(3), pages 362-373.
    6. Olkhov, Victor, 2016. "Finance, risk and economic space," MPRA Paper 87172, University Library of Munich, Germany.
    7. Plerou, Vasiliki & Gopikrishnan, Parameswaran & Rosenow, Bernd & Amaral, Luis A.N. & Stanley, H.Eugene, 2000. "Econophysics: financial time series from a statistical physics point of view," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 279(1), pages 443-456.
    8. Michael Michaely, 1971. "Appendix: A Few Experiments with Formal Correlation Analysis," NBER Chapters, in: The Responsiveness of Demand Policies to Balance of Payments: Postwar Patterns, pages 281-287, National Bureau of Economic Research, Inc.
    9. Victor Olkhov, 2018. "How Macro Transactions Describe the Evolution and Fluctuation of Financial Variables," IJFS, MDPI, vol. 6(2), pages 1-19, March.
    10. DeFusco, Anthony A. & Nathanson, Charles G. & Zwick, Eric, 2022. "Speculative dynamics of prices and volume," Journal of Financial Economics, Elsevier, vol. 146(1), pages 205-229.
    11. Andersen, Torben G. & Bollerslev, Tim & Christoffersen, Peter F. & Diebold, Francis X., 2006. "Volatility and Correlation Forecasting," Handbook of Economic Forecasting, in: G. Elliott & C. Granger & A. Timmermann (ed.), Handbook of Economic Forecasting, edition 1, volume 1, chapter 15, pages 777-878, Elsevier.
    12. Milton Friedman, 1962. "The Interpolation of Time Series by Related Series," NBER Books, National Bureau of Economic Research, Inc, number frie62-1, May.
    13. Victor Olkhov, 2021. "To VaR, or Not to VaR, That is the Question," Papers 2101.08559, arXiv.org, revised Oct 2021.
    14. Guillermo Llorente & Roni Michaely & Gideon Saar & Jiang Wang, 2002. "Dynamic Volume-Return Relation of Individual Stocks," The Review of Financial Studies, Society for Financial Studies, vol. 15(4), pages 1005-1047.
    15. Torben G. Andersen & Tim Bollerslev & Peter Christoffersen & Francis X. Diebold, 2007. "Practical Volatility and Correlation Modeling for Financial Market Risk Management," NBER Chapters, in: The Risks of Financial Institutions, pages 513-544, National Bureau of Economic Research, Inc.
    16. Karpoff, Jonathan M., 1987. "The Relation between Price Changes and Trading Volume: A Survey," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(1), pages 109-126, March.
    17. William N. Goetzmann & Lingfeng Li & K. Geert Rouwenhorst, 2005. "Long-Term Global Market Correlations," The Journal of Business, University of Chicago Press, vol. 78(1), pages 1-38, January.
    18. Olkhov, Victor, 2021. "Theoretical Economics and the Second-Order Economic Theory. What is it?," MPRA Paper 110893, University Library of Munich, Germany.
    19. Enzo Busseti & Stephen Boyd, 2015. "Volume Weighted Average Price Optimal Execution," Papers 1509.08503, arXiv.org.
    20. Michael Michaely, 1971. "The Responsiveness of Demand Policies to Balance of Payments: Postwar Patterns," NBER Books, National Bureau of Economic Research, Inc, number mich71-1, May.
    21. Victor Olkhov, 2019. "Financial Variables, Market Transactions, and Expectations as Functions of Risk," IJFS, MDPI, vol. 7(4), pages 1-27, November.
    22. Shephard, N.G., 1991. "From Characteristic Function to Distribution Function: A Simple Framework for the Theory," Econometric Theory, Cambridge University Press, vol. 7(4), pages 519-529, December.
    23. Olkhov, Victor, 2017. "Quantitative wave model of macro-finance," International Review of Financial Analysis, Elsevier, vol. 50(C), pages 143-150.
    24. Berkowitz, Stephen A & Logue, Dennis E & Noser, Eugene A, Jr, 1988. " The Total Cost of Transactions on the NYSE," Journal of Finance, American Finance Association, vol. 43(1), pages 97-112, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Victor Olkhov, 2022. "Price and Payoff Autocorrelations in a Multi-Period Consumption-Based Asset Pricing Model," Papers 2204.07506, arXiv.org, revised Mar 2024.
    2. Olkhov, Victor, 2022. "Price and Payoff Autocorrelations in the Consumption-Based Asset Pricing Model," MPRA Paper 112255, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Olkhov, Victor, 2022. "Price and Payoff Autocorrelations in the Consumption-Based Asset Pricing Model," MPRA Paper 112255, University Library of Munich, Germany.
    2. Victor Olkhov, 2022. "Market-Based Asset Price Probability," Papers 2205.07256, arXiv.org, revised Feb 2024.
    3. Olkhov, Victor, 2022. "Why Economic Theories and Policies Fail? Unnoticed Variables and Overlooked Economics," MPRA Paper 114187, University Library of Munich, Germany.
    4. Victor Olkhov, 2022. "Market-Based Price Autocorrelation," Papers 2202.09323, arXiv.org, revised Feb 2024.
    5. Olkhov, Victor, 2022. "Economic Policy - the Forth Dimension of the Economic Theory," MPRA Paper 112685, University Library of Munich, Germany.
    6. Victor Olkhov, 2020. "Price, Volatility and the Second-Order Economic Theory," Papers 2009.14278, arXiv.org, revised Apr 2021.
    7. Victor Olkhov, 2021. "Three Remarks On Asset Pricing," Papers 2105.13903, arXiv.org, revised Jan 2024.
    8. Olkhov, Victor, 2023. "Economic Theory as Successive Approximations of Statistical Moments," MPRA Paper 118722, University Library of Munich, Germany.
    9. Victor Olkhov, 2023. "Theoretical Economics as Successive Approximations of Statistical Moments," Papers 2310.05971, arXiv.org, revised Apr 2024.
    10. Victor Olkhov, 2023. "Market-Based Probability of Stock Returns," Papers 2302.07935, arXiv.org, revised Feb 2024.
    11. Victor Olkhov, 2023. "Economic Complexity Limits Accuracy of Price Probability Predictions by Gaussian Distributions," Papers 2309.02447, arXiv.org, revised Apr 2024.
    12. Olkhov, Victor, 2020. "Classical Option Pricing and Some Steps Further," MPRA Paper 105431, University Library of Munich, Germany, revised 28 Dec 2020.
    13. Olkhov, Victor, 2020. "Volatility Depend on Market Trades and Macro Theory," MPRA Paper 102434, University Library of Munich, Germany.
    14. Victor Olkhov, 2019. "Financial Variables, Market Transactions, and Expectations as Functions of Risk," IJFS, MDPI, vol. 7(4), pages 1-27, November.
    15. Victor Olkhov, 2022. "Price and Payoff Autocorrelations in a Multi-Period Consumption-Based Asset Pricing Model," Papers 2204.07506, arXiv.org, revised Mar 2024.
    16. Olkhov, Victor, 2018. "Expectations, Price Fluctuations and Lorenz Attractor," MPRA Paper 89105, University Library of Munich, Germany.
    17. Victor Olkhov, 2021. "Theoretical Economics and the Second-Order Economic Theory. What is it?," Papers 2112.04566, arXiv.org, revised Mar 2024.
    18. Olkhov, Victor, 2021. "To VaR, or Not to VaR, That is the Question," MPRA Paper 105458, University Library of Munich, Germany.
    19. Bialkowski, Jedrzej & Darolles, Serge & Le Fol, Gaëlle, 2008. "Improving VWAP strategies: A dynamic volume approach," Journal of Banking & Finance, Elsevier, vol. 32(9), pages 1709-1722, September.
    20. Alizadeh, Amir H. & Tamvakis, Michael, 2016. "Market conditions, trader types and price–volume relation in energy futures markets," Energy Economics, Elsevier, vol. 56(C), pages 134-149.

    More about this item

    Keywords

    asset pricing; price probability; autocorrelation; market trades;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • C80 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - General
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:112003. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.