Correlations in the Bond–Future Market

Gianaurelio Cuniberti, Marco Raberto () and Enrico Scalas ()
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Gianaurelio Cuniberti: MPI fuer Physik Komplexer Systeme, Dresden, Germany

Finance from EconWPA

Abstract: We analyze the time series of overnight returns for the bund and btp futures exchanged at liffe (London). The overnight returns of both assets are mapped onto a one–dimensional symbolic–dynamics random walk: The “bond walk”. During the considered period (October 1991—January 1994) the bund–future market opened earlier than the btp–future one. The cross correlations between the two bond walks, as well as estimates of the conditional probability, show that they are not independent; however each walk can be modeled by means of a trinomial probability distribution. Monte Carlo simulations confirm that it is necessary to take into account the bivariate dependence in order to properly reproduce the statistical properties of the real–world data. Various investment strategies have been devised to exploit the “prior” information obtained by the aforementioned analysis.

Keywords: Random walk; complex systems; financial markets (search for similar items in EconPapers)
JEL-codes: G (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin
Date: 2004-11-05
Note: Type of Document - pdf; pages: 10. Preprint pdf version of a paper published in Physica A, vol.269, no.1, p.90-7, 1 July 1999.
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Working Paper: Correlations in the Bond-Future Market (1999)
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpfi:0411005

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