The impact of asynchronous trading on Epps effect on Warsaw Stock Exchange

Henryk Gurgul and Artur Machno
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Artur Machno: AGH University of Science and Technology

Central European Journal of Operations Research, 2017, vol. 25, issue 2, No 2, 287-301

Abstract: Abstract The main goal of the analysis is the verification of whether asynchrony in transaction times is a considerable cause of the Epps effect on the Warsaw Stock Exchange among the most liquid assets. A method for compensating for the impact of asynchrony in trading on the Epps effect is presented. The method is easily applicable. Calculations are made using the exact time of transactions and prices of the assets. The estimation is not biased by intervals during which no transactions have taken place. Among all the analyzed stock pairs, 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. The presented analysis can be reproduced for the same data or replicated for another dataset; all R codes used in the process of writing this article are available upon request. The main novelty/value added of this paper is the application to an emerging market of a new method for compensating for asynchrony in trading.

Keywords: Market microstructure; Epps effect; Asynchronous trading; Correlation estimation; Asynchronous time series (search for similar items in EconPapers)
JEL-codes: F36 G15 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s10100-016-0442-y

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