A transactions data analysis of nonsynchronous trading |
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Authors: | Kadlec, GB Patterson, DM |
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Affiliation: | Pamplin College of Business, Blacksburg, VA 24060-0221, USA 1 Corresponding author |
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Abstract: | Weekly returns of stock portfolios exhibit substantial autocorrelation.Analytical studies suggest that nonsynchronous trading is capableof explaining from 5% to 65% of the autocorrelation. The varyingimportance of nonsynchronous trading in these studies arisesprimarily from differing assumptions regarding nontrading periodsof stocks. We simulate the effects of nonsynchronous tradingby sampling stock returns from a return generating process usingtransactions data to obtain the precise time of each stock'slast trade. We find that simulated weekly portfolio returnsexhibit autocorrelations that are roughly 25% that of theirobserved (CRSP) weekly returns. |
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