Correlation estimation using components of Japanese candlesticks |
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Authors: | V Popov |
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Institution: | School of Mathematics and StatisticsUniversity of St Andrews, St Andrews, KY16 9LZ, UK. |
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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. |
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Keywords: | Japanese candlesticks Correlation Estimation Brownian motion Jump diffusions |
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