Modelling High-frequency Economic Time Series

Details Modelling High-frequency Economic Time Series Modelling High-frequency Economic Time Series

2000-07-17

arxiv.org/abs/cond-mat/0007267v1

Physics

Condensed Matter

Statistical Mechanics

To appear in Proceedings of the Dynamics Days Asia Pacific Conference, 13-16 July, 1999, Hong Kong (Physica A, 2000)

Scientific paper

10.1016/S0378-4371(00)00442-8

The minute-by-minute move of the Hang Seng Index (HSI) data over a four-year period is analysed and shown to possess similar statistical features as those of other markets. Based on a mathematical theorem [S. B. Pope and E. S. C. Ching, Phys. Fluids A {\bf 5}, 1529 (1993)], we derive an analytic form for the probability distribution function (PDF) of index moves from fitted functional forms of certain conditional averages of the time series. Furthermore, following a recent work by Stolovitzky and Ching, we show that the observed PDF can be reproduced by a Langevin process with a move-dependent noise amplitude. The form of the Langevin equation can be determined directly from the market data.

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