Nonsynchronous Security Trading and Market Index Autocorrelation.

Abstract

This paper investiga tes the extent to which nonsynchronous security trading explains observed autocorrelations in daily returns on stock market indices. The theoretical portfolio autocorrelation due solely to nonsynchronous trading is estimated from a derived model. This estimated level is found to be substantially less than that observed empirically. The theoretical and empirical relationship between portfolio size and autocorrelation is also investigated. The results of this study suggest that other price-adjustment delay factors, in addition to nonsynchronous trading, cause the high autocorrelations present in daily returns on stock index portfolios. Copyright 1987 by American Finance Association.