52 research outputs found
Impact of the tick-size on financial returns and correlations
We demonstrate that the lowest possible price change (tick-size) has a large
impact on the structure of financial return distributions. It induces a
microstructure as well as it can alter the tail behavior. On small return
intervals, the tick-size can distort the calculation of correlations. This
especially occurs on small return intervals and thus contributes to the decay
of the correlation coefficient towards smaller return intervals (Epps effect).
We study this behavior within a model and identify the effect in market data.
Furthermore, we present a method to compensate this purely statistical error.Comment: 18 pages, 10 figure
A Copula Approach on the Dynamics of Statistical Dependencies in the US Stock Market
We analyze the statistical dependency structure of the S&P 500 constituents
in the 4-year period from 2007 to 2010 using intraday data from the New York
Stock Exchange's TAQ database. With a copula-based approach, we find that the
statistical dependencies are very strong in the tails of the marginal
distributions. This tail dependence is higher than in a bivariate Gaussian
distribution, which is implied in the calculation of many correlation
coefficients. We compare the tail dependence to the market's average
correlation level as a commonly used quantity and disclose an nearly linear
relation
Compensating asynchrony effects in the calculation of financial correlations
We present a method to compensate statistical errors in the calculation of
correlations on asynchronous time series. The method is based on the assumption
of an underlying time series. We set up a model and apply it to financial data
to examine the decrease of calculated correlations towards smaller return
intervals (Epps effect). We show that this statistical effect is a major cause
of the Epps effect. Hence, we are able to quantify and to compensate it using
only trading prices and trading times.Comment: 13 pages, 7 figure
High-Performance Dual Raman Spectrometer
12 pages, 16 figures.The transformation of an old Raman double monochromator into
a dual spectrometer capable of working either as the origin al instrument
or as a very high sensitivity scanning single monochromator
with multichannel charge-coupled device (CCD) array detection
is described. The merits and limitations of this instrument, particularly
suited for medium/low resolu tion (0.3 to 2 cm2 1) Raman
spectroscopy in the gas phase, are discussed. Example spectra of
O2, N2, CO2, H2O, and CCl4 are shown.The Dirección General de Investigación
CientÃfica y Técnica (DGICYT), of Spain, is acknowledged for financial
support (Research Project PB91-0133).Peer reviewe
Microscopic understanding of heavy-tailed return distributions in an agent-based model
The distribution of returns in financial time series exhibits heavy tails. In
empirical studies, it has been found that gaps between the orders in the order
book lead to large price shifts and thereby to these heavy tails. We set up an
agent based model to study this issue and, in particular, how the gaps in the
order book emerge. The trading mechanism in our model is based on a
double-auction order book, which is used on nearly all stock exchanges. In
situations where the order book is densely occupied with limit orders we do not
observe fat-tailed distributions. As soon as less liquidity is available, a gap
structure forms which leads to return distributions with heavy tails. We show
that return distributions with heavy tails are an order-book effect if the
available liquidity is constrained. This is largely independent of the specific
trading strategies
To lag or not to lag? How to compare indices of stock markets that operate at different times
Financial markets worldwide do not have the same working hours. As a
consequence, the study of correlation or causality between financial market
indices becomes dependent on wether we should consider in computations of
correlation matrices all indices in the same day or lagged indices. The answer
this article proposes is that we should consider both. In this work, we use 79
indices of a diversity of stock markets across the world in order to study
their correlation structure, and discover that representing in the same network
original and lagged indices, we obtain a better understanding of how indices
that operate at different hours relate to each other
Correlation of financial markets in times of crisis
Using the eigenvalues and eigenvectors of correlations matrices of some of
the main financial market indices in the world, we show that high volatility of
markets is directly linked with strong correlations between them. This means
that markets tend to behave as one during great crashes. In order to do so, we
investigate several financial market crises that occurred in the years 1987
(Black Monday), 1989 (Russian crisis), 2001 (Burst of the dot-com bubble and
September 11), and 2008 (Subprime Mortgage Crisis), which mark some of the
largest downturns of financial markets in the last three decades.Comment: 33 pages, 46 figure
One size fits all? High frequency trading, tick size changes and the implications for exchanges: market quality and market structure considerations
This paper offers a systematic review of the empirical literature on the implications of tick size changes for exchanges. Our focus is twofold: first, we are concerned with the market quality implications of a change in the minimum tick size. Second, we are interested in the implications of changes in the minimum tick size on market structure. We show that there is a large body of empirical literature that documents a decrease in transaction costs following a decrease in the minimum tick size. However, even though market liquidity increases, the incentive to provide market making activities decreases. We document a strong link between the minimum tick size regulations and the recent increase in high frequency trading activity. A smaller tick enhances the price discovery process. However, the question of how multiple tick size regimes affect market liquidity in a fragmented market remains to be answered. Finally, we identify topics for future research; we discuss the empirical literature on the minimum trade unit and the recent calls for a minimum resting time for quotes
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