The impact of asynchronous trading on Epps effect. Comparative study on Warsaw Stock Exchange and Vienna Stock Exchange

• Autorzy: Gurgul H. , Machno A.

Identyfikatory

DOI

10.7494/manage.2016.17.1.59

• Języki publikacji: EN

Abstrakty

EN

The novelty/value added of this paper is the comparison of the Epps effect between developed and emerging stock markets from Central Europe by means of the correction formula derived by the authors. The main goal of the study is to test whether or not asynchrony in transaction times is a considerable source of the Epps effect in the case of the Warsaw and Vienna stock exchanges for the most-liquid assets from these markets. Among all analyzed stock pairs on the WSE, asynchrony turns out to be the main cause of the Epps effect. However, the corrected correlation estimator seems to be more volatile than the regular estimator of the correlation. In the case of the VSE, evidence of the Epps effect is not unique. For the most-liquid and most-correlated pair (namely, ANDR-EBS), the analysis delivers similar results as for Polish stocks. However, the Epps effect could not be detected for the remaining pairs on the VSE. The presented analysis can be reproduced for the same data or replicated for another dataset; all R codes used in the computation within this paper are available upon request.

Słowa kluczowe

EN

VSE; WSE; market microstructure; Epps effect; asynchronous trading; correlation estimation; asynchronous time series

• Wydawca: Wydawnictwa AGH
• Czasopismo: Managerial Economics
• Rocznik: 2016
• Tom: Vol. 17, no. 1
• Strony: 59--75
• Opis fizyczny: Bibliogr. 7 poz., tab., wykr.

Twórcy

autor

Gurgul H.

• AGH University of Science and Technology in Krakow, Faculty of Management, Department of Applications of Mathematics in Economics

autor

Machno A.

• AGH University of Science and Technology in Krakow, Faculty of Management, Department of Applications of Mathematics in Economics

Bibliografia

• [1] Conlon, T., Ruskin, H.J. and Crane, M. (2009) ‘Multiscaled Cross-Correlation Dynamics In Financial Time-Series, Physica A 388(5), pp. 705–714.
• [2] Epps, T.W. (1979) ‘Comovements in stock prices in the very short run’, Journal of the American Statistical Association, vol. 74, pp. 291–298.
• [3] Gurgul, H. and Machno, A. (2015) ‘The Impact of Asynchronous Trading on Epps Effect on Warsaw Stock Exchange’, Central European Journal of Operational Research, forthcoming, DOI: 10.1007/s10100-016-0442-y.
• [4] Lundin, M., Dacorogna, M. and Muller, U.A. (1998) ‘Correlation of High Frequency Financial Time Series’, in Lequeux P. (ed.) Financial Markets Tick by Tick, Wilney and Sons.
• [5] Mastromatteo, I., Marsili, M. and Zoi, P. (2011) ‘Financial correlations at ultrahigh frequency: theoretical models and empirical estimation’, The European Physical Journal B, vol. 80, pp. 243–253.
• [6] Munnix, M.C., Schafer, R. and Guhr, T. (2010) ‘Compensating asynchrony effects in the calculation of financial correlations’, Physica A 389, pp. 767–779.
• [7] Toth, B. and Kertesz, J. (2009) ‘The Epps effect revisited’, Quantitative Finance, vol. 9, pp. 793–802.

Uwagi

Financial support for this paper comes from the National Science Center of Poland (Research Grant DEC-2012/05/B/HS4/00810) and is gratefully acknowledged by Henryk Gurgul. Financial support for this paper comes from the Dean of Faculty of Management, AGH University (statutory activity no. 15/11.200.296) and is gratefully acknowledged by Artur Machno.