Impact of the tick-size on financial returns and correlations

Details Impact of the tick-size on financial returns and correlations Impact of the tick-size on financial returns and correlations

2010-01-28

arxiv.org/abs/1001.5124v4

Physica A Vol. 389, No. 21 (2010)

Economy

Quantitative Finance

Statistical Finance

18 pages, 10 figures

Scientific paper

10.1016/j.physa.2010.06.037

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.

Affiliated with

Also associated with

No associations

Rating

Impact of the tick-size on financial returns and correlations does not yet have a rating. At this time, there are no reviews or comments for this scientific paper.

If you have personal experience with Impact of the tick-size on financial returns and correlations, we encourage you to share that experience with our LandOfFree.com community. Your opinion is very important and Impact of the tick-size on financial returns and correlations will most certainly appreciate the feedback.

Rate now

Comments { 0 }

Profile ID: LFWR-SCP-O-254310