Price Clustering and Discreteness: Is there Chaos behind the Noise?
We investigate the "compass rose" (Crack, T.F. and Ledoit, O. (1996), Journal of Finance, 51(2), pg. 751-762) patterns revealed in phase portraits (delay plots) of stock returns. The structures observed in these diagrams have been attributed mainly to price clustering and discreteness. 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.
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.:
- 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.
- 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.
- 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.
- Fang, Yue, 2002. "The compass rose and random walk tests," Computational Statistics & Data Analysis, Elsevier, vol. 39(3), pages 299-310, May.
- Brock, W.A. & Dechert, W.D. & LeBaron, B. & Scheinkman, J.A., 1995. "A Test for Independence Based on the Correlation Dimension," Working papers 9520, Wisconsin Madison - Social Systems.
- 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.
- Victor Niederhoffer, 1965. "Clustering of Stock Prices," Operations Research, INFORMS, vol. 13(2), pages 258-265, April.
- Capobianco, Enrico, 2003. "Empirical volatility analysis: feature detection and signal extraction with function dictionaries," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 319(C), pages 495-518.
- 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.
- James Theiler & Stephen Eubank, 1993. "Don't Bleach Chaotic Data," Working Papers 93-05-026, Santa Fe Institute.
- Kramer, Walter & Runde, Ralf, 1997. "Chaos and the compass rose," Economics Letters, Elsevier, vol. 54(2), pages 113-118, February.
- 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.
- 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.