Compensating asynchrony effects in the calculation of financial correlations

Michael C. M\"unnix, Rudi Sch\"afer and Thomas Guhr

Papers from arXiv.org

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 this 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.

Date: 2009-10, Revised 2010-07
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Citations: View citations in EconPapers (9)

Published in Physica A Vol. 389, No. 4 (2010)

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:0910.2909

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