An Analysis of the Impacts of Non-Synchronous Trading On
AbstractThe serial correlation effects which non-synchronous trading can induce in financial data have been documented by various researchers. In this paper we investigate non-synchronous trading effects in terms of the predictability that may be induced in the values of stock indices. This analysis is applied to emerging-market data, on the grounds that such markets might be less liquid and thus prone to a higher degree of non- synchronous trading. We use both a daily data set and a higher frequency one, since the latter is a prerequisite for capturing intra-day variations in trading activity. When considering one-minute interval data, we obtain clear evidence of predictability between indices with different degrees of non-synchronous trading. We then propose a simple test to infer whether such predictability is mainly attributable to non- synchronous trading or an actual delayed adjustment on part of traders. The results obtained from an intra-day analysis suggest that the former cause seems a better explanation for the observed predictability. Future research in this area is needed to shed light on the degree of data predictability which may be exclusively attributed to non-synchronous trading, and how empirical results may be influenced by the chosen data frequency.
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Bibliographic InfoPaper provided by EconWPA in its series Finance with number 0504020.
Length: 50 pages
Date of creation: 27 Apr 2005
Date of revision:
Note: Type of Document - pdf; pages: 50
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Non-Synchronous Trading; Stock Markets; National Stock Exchange of India; High-Frequency Data.;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-04-30 (All new papers)
- NEP-FIN-2005-04-30 (Finance)
- NEP-RMG-2005-04-30 (Risk Management)
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