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Market-Based Price Autocorrelation

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  • Olkhov, Victor

Abstract

This paper assumes that the randomness of market trade values and volumes determines the properties of stochastic market prices. We derive the direct dependence of the first two price statistical moments and price volatility on statistical moments, volatilities, and correlations of market trade values and volumes. That helps describe the dependence of market-based price autocorrelation between times t and t-τ on statistical moments and correlations between trade values and volumes. That highlights the impact of the randomness of the size of market deals on price statistical moments and autocorrelation. Statistical moments and correlations of market trade values and volumes are assessed by conventional frequency-based probabilities. The distinctions between market-based price autocorrelation and autocorrelation that are assessed by the frequency-based probability analysis of price time series reveal the different approaches to the definitions of price probabilities. To forecast market-based price autocorrelation, one should predict the statistical moments and correlations of trade values and volumes.

Suggested Citation

  • Olkhov, Victor, 2022. "Market-Based Price Autocorrelation," MPRA Paper 120288, University Library of Munich, Germany, revised 26 Feb 2024.
    • Handle: RePEc:pra:mprapa:120288
    as

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    References listed on IDEAS

    as
    1. Victor Olkhov, 2022. "Market-Based Asset Price Probability," Papers 2205.07256, arXiv.org, revised Feb 2024.
    2. Alexander Buryak & Ivan Guo, 2014. "Effective And Simple Vwap Options Pricing Model," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 17(06), pages 1-13.
    3. Victor Olkhov, 2021. "Three Remarks On Asset Pricing," Papers 2105.13903, arXiv.org, revised Jan 2024.
    4. John Y. Campbell & Sanford J. Grossman & Jiang Wang, 1993. "Trading Volume and Serial Correlation in Stock Returns," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(4), pages 905-939.
    5. 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.
    6. 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.
    7. Enzo Busseti & Stephen Boyd, 2015. "Volume Weighted Average Price Optimal Execution," Papers 1509.08503, arXiv.org.
    8. Alexander Buryak & Ivan Guo, 2014. "Effective and simple VWAP option pricing model," Papers 1407.7315, arXiv.org.
    9. 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.
    Full references (including those not matched with items on IDEAS)

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    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

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