Price Clustering and Discreteness: Is there Chaos behind the Noise?

Details Price Clustering and Discreteness: Is there Chaos behind the Noise? Price Clustering and Discreteness: Is there Chaos behind the Noise?

2004-07-18

arxiv.org/abs/cond-mat/0407471v1

Physics

Condensed Matter

Other Condensed Matter

18 pages, 3 tables, 3 figures

Scientific paper

10.1016/j.physa.2004.09.006

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.

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