Special Quotes Invoke Autocorrelation in Japanese Stock Prices *

Yoshiro Tsutsui, Kenjiro Hirayama, Takahiro Tanaka and Nobutaka Uesugi

Asian Economic Journal, 2007, vol. 21, issue 4, pages 369-386

Abstract: It is reported in the present paper that 1-min returns on TOPIX have exhibited significant autocorrelation at 5-min intervals since 1997/1998. Special quotes that are issued whenever there is a price jump in excess of a predetermined band seem to be the source of this autocorrelation, because these have been automatically updated at 5-min intervals since August 1998 and have appeared during the first 30 min from opening. Individual stock returns also exhibit fifth-order autocorrelation, but this disappears when the data with special quotes are excluded from the sample. Therefore, the autocorrelation is caused by the special quotes: a type of market microstructure noise. Copyright 2007 The Authors
Journal compilation 2007 East Asian Economic Association and Blackwell Publishing Ltd. .

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