Price clustering and discreteness: is there chaos behind the noise?
We investigate the “compass rose” patterns introduced by Crack and Ledoit (J. Finance 51(2)(1996) 751) as revealed in phase portraits (delay plots) of stock returns. The structures observed in these diagrams have been attributed mainly to price clustering and discreteness and the tick size. Using wavelet-based denoising, we examine the noise-free versions of a set of FTSE100 stock returns time series. We reveal evidence of non-periodic cyclical dynamics. As a second stage we apply surrogate data analysis on the original and denoised stock returns. Our results suggest that there is a strong nonlinear and possibly deterministic signature in the data generating processes of the stock returns sequences.
Volume (Year): 348 (2005)
Issue (Month): C ()
|Contact details of provider:|| Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Victor Niederhoffer, 1965. "A New Look at Clustering of Stock Prices," The Journal of Business, University of Chicago Press, vol. 39, pages 309-309.
- Szpiro, George G., 1998. "Tick size, the compass rose and market nanostructure," Journal of Banking & Finance, Elsevier, vol. 22(12), pages 1559-1569, December.
- Kramer, Walter & Runde, Ralf, 1997. "Chaos and the compass rose," Economics Letters, Elsevier, vol. 54(2), pages 113-118, February.
- Chun I. Lee & Kimberly C. Gleason & Ike Mathur, 1999. "A comprehensive examination of the compass rose pattern in futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 19(5), pages 541-564, 08.
- Ramsey, James B & Sayers, Chera L & Rothman, Philip, 1990.
"The Statistical Properties of Dimension Calculations Using Small Data Sets: Some Economic Applications,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(4), pages 991-1020, November.
- Ramsey, J.B. & Sayers, C.L. & Rothman, P., 1988. "The Statistical Properties Of Dimension Calculations Using Small Data Sets: Some Economic Applications," Papers 15, Houston - Department of Economics.
- Wang, Eliza & Hudson, Robert & Keasey, Kevin, 2000. "Tick size and the compass rose: further insights," Economics Letters, Elsevier, vol. 68(2), pages 119-125, August.
- Brock, W.A., 1991. "Some Theory of Statistical Inference for Nonlinear Science : Expanded Version," Working papers 9101, Wisconsin Madison - Social Systems.
- Clifford A. Ball & Walter N. Torous & Adrian E. Tschoegl, 1985. "The degree of price resolution: The case of the gold market," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 5(1), pages 29-43, 03.
- Ramsey, J.B., 2002. "Wavelets in Economics and Finance: Past and Future," Working Papers 02-02, C.V. Starr Center for Applied Economics, New York University.
- 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, Springer;Society for Computational Economics, vol. 21(3), pages 257-276, June.
- James Theiler & Stephen Eubank, 1993. "Don't Bleach Chaotic Data," Working Papers 93-05-026, Santa Fe Institute.
- LeBaron Blake, 1997. "A Fast Algorithm for the BDS Statistic," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 2(2), pages 1-9, July.
- Antoniou, Antonios & Vorlow, Constantinos E., 2004. "Recurrence quantification analysis of wavelet pre-filtered index returns," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 344(1), pages 257-262.
- Mandelbrot, Benoit B., 1999. "Renormalization and fixed points in finance, since 1962," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 263(1), pages 477-487.
- Fang, Yue, 2002. "The compass rose and random walk tests," Computational Statistics & Data Analysis, Elsevier, vol. 39(3), pages 299-310, May.
- Hsieh, David A, 1991. " Chaos and Nonlinear Dynamics: Application to Financial Markets," Journal of Finance, American Finance Association, vol. 46(5), pages 1839-1877, December.
- Mayfield, E Scott & Mizrach, Bruce, 1992. "On Determining the Dimension of Real-Time Stock-Price Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 367-374, July.
- Ausloos, M. & Vandewalle, N. & Boveroux, Ph. & Minguet, A. & Ivanova, K., 1999. "Applications of statistical physics to economic and financial topics," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 274(1), pages 229-240.
- Gleason, Kimberly C. & Lee, Chun I. & Mathur, Ike, 2000. "An explanation for the compass rose pattern," Economics Letters, Elsevier, vol. 68(2), pages 127-133, August.
- Cho, David Chinhyung & Frees, Edward W, 1988. " Estimating the Volatility of Discrete Stock Prices," Journal of Finance, American Finance Association, vol. 43(2), pages 451-466, June.
- William A. Brock & Ehung G. Baek, 1991. "Some Theory of Statistical Inference for Nonlinear Science," Review of Economic Studies, Oxford University Press, vol. 58(4), pages 697-716.
- Ramsey James B., 2002. "Wavelets in Economics and Finance: Past and Future," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 6(3), pages 1-29, November.
- Kyrtsou, Catherine & Terraza, Michel, 2002. "Stochastic chaos or ARCH effects in stock series?: A comparative study," International Review of Financial Analysis, Elsevier, vol. 11(4), pages 407-431.
- An-Sing Chen, 1997. "The square compass rose: the evidence from Taiwan," Journal of Multinational Financial Management, Elsevier, vol. 7(2), pages 127-144, June. Full references (including those not matched with items on IDEAS)