Correlation estimation using components of Japanese candlesticks

V. Popov

Quantitative Finance, 2016, vol. 16, issue 10, 1615-1630

Abstract: Using the wick’s difference from the classical Japanese candlestick representation of daily open, high, low, close prices brings efficiency when estimating the correlation in a bivariate Brownian motion. An interpretation of the correlation estimator given in [Rogers, L.C.G. and Zhou, F., Estimating correlation from high, low, opening and closing prices. Ann. Appl. Probab., 2008, 18(2), 813–823] in the light of wicks’ difference allows us to suggest modifications, which lead to an increased efficiency and robustness over the baseline model. An empirical study of four major financial markets confirms the advantages of the modified estimator.

Date: 2016
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DOI: 10.1080/14697688.2016.1157625

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