Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
978902 | Physica A: Statistical Mechanics and its Applications | 2010 | 16 Pages |
Abstract
We demonstrate that the lowest possible price change (tick-size) has a large impact on the structure of financial return distributions. It induces a microstructure as well as possibly altering the tail behavior. On small return intervals, the tick-size can distort the calculation of correlations. This especially occurs on small return intervals and thus contributes to the decay of the correlation coefficient towards smaller return intervals (Epps effect). We study this behavior within a model and identify the effect in market data. Furthermore, we present a method to compensate this purely statistical error.
Related Topics
Physical Sciences and Engineering
Mathematics
Mathematical Physics
Authors
Michael C. Münnix, Rudi Schäfer, Thomas Guhr,