Compensating asynchrony effects in the calculation of financial correlations

Michael C. Münnix, Rudi Schäfer and Thomas Guhr

Physica A: Statistical Mechanics and its Applications, 2010, vol. 389, issue 4, 767-779

Abstract: We present a method to compensate statistical errors in the calculation of correlations on asynchronous time series. The method is based on the assumption of an underlying time series. We set up a model and apply it to financial data to examine the decrease of calculated correlations towards smaller return intervals (Epps effect). We show that the discovered statistical effect is a major cause of the Epps effect. Hence, we are able to quantify and to compensate it using only trading prices and trading times.

Keywords: Financial correlations; Epps effect; Market emergence; Covariance estimation; Asynchronous time series (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378437109009030
Full text for ScienceDirect subscribers only. Journal offers the option of making the article available online on Science direct for a fee of $3,000

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:389:y:2010:i:4:p:767-779

DOI: 10.1016/j.physa.2009.10.033

Access Statistics for this article

Physica A: Statistical Mechanics and its Applications is currently edited by K. A. Dawson, J. O. Indekeu, H.E. Stanley and C. Tsallis

More articles in Physica A: Statistical Mechanics and its Applications from Elsevier
Bibliographic data for series maintained by Catherine Liu ().