95 research outputs found
Spot foreign exchange market and time series
We investigate high frequency price dynamics in foreign exchange market using
data from Reuters information system (the dataset has been provided to us by
Ols en & Associates). In our analysis we show that a na\"ive approach to the
definition of price (for example using the spot midprice) may lead to wrong
conclusions on price behavior as for example the presence of short term
covariances for returns.
For this purpose we introduce an algorithm which only uses the non arbitrage
principle to estimate real prices from the spot ones. The new definition leads
to returns which are i.i.d. variables and therefore are not affected by
spurious correlations. Furthermore, any apparent information (defined by using
Shannon entropy) contained in the data disappears
Clustering of volatility as a multiscale phenomenon
The dynamics of prices in financial markets has been studied intensively both
experimentally (data analysis) and theoretically (models). Nevertheless, a
complete stochastic characterization of volatility is still lacking. What it is
well known is that absolute returns have memory on a long time range, this
phenomenon is known as clustering of volatility. In this paper we show that
volatility correlations are power-laws with a non-unique scaling exponent. This
kind of multiscale phenomenology, which is well known to physicists since it is
relevant in fully developed turbulence and in disordered systems, is recently
pointed out for financial series. Starting from historical returns series, we
have also derived the volatility distribution, and the results are in agreement
with a log-normal shape. In our study we consider the New York Stock Exchange
(NYSE) daily composite index closes (January 1966 to June 1998) and the US
Dollar/Deutsch Mark (USD-DM) noon buying rates certified by the Federal Reserve
Bank of New York (October 1989 to September 1998).Comment: 6 pages, RevTeX, 6 eps figures, submitted to Econometrica, added
reference
Observability of Market Daily Volatility
We study the price dynamics of 65 stocks from the Dow Jones Composite Average
from 1973 until 2014. We show that it is possible to define a Daily Market
Volatility which is directly observable from data. This quantity is
usually indirectly defined by where the are
the daily returns of the market index and the are i.i.d. random
variables with vanishing average and unitary variance. The relation
alone is unable to give an operative definition of
the index volatility, which remains unobservable. On the contrary, we show that
using the whole information available in the market, the index volatility can
be operatively defined and detected
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