Abstract

http://ssrn.com/abstract=1891914
 
 

References (19)



 


 



On the Performance of the Tick Test


Marcelo Perlin


Escola de Administração - UFRGS

Chris Brooks


University of Reading - ICMA Centre

Alfonso Dufour


University of Reading - Henley Business School, ICMA Centre

August 11, 2011


Abstract:     
In the present paper, we investigate the accuracy of the tick test from an analytical perspective by providing a closed formula for the performance of the prediction algorithm. This formula takes as inputs the spread of the traded asset, the volatility of the innovations, and the probability of news, among other parameters, and it outputs the percentage of times that the tick test will make correct predictions regarding the sign of a trade. Further analysis shows that by imposing restrictions on the underlying microstructure model, the formula for the tick test performance is related to simple statistics from a vector of trade price differences. This means that, without the need for quote data (or the real sign of the trades), the formula can assess the percentage of cases for which the tick test will make correct predictions. Using tick data for fifteen heavily traded stocks in the Brazilian equity market, we are able to compare the values from the analytical formula against the empirical performance of the tick test, showing that the formula is quite realistic in assessing the accuracy of the prediction algorithm.

Number of Pages in PDF File: 22

Keywords: tick test, market microstructure, sign of a trade, PIN

JEL Classification: G1, C8

working papers series


Download This Paper

Date posted: July 22, 2011 ; Last revised: May 8, 2012

Suggested Citation

Perlin, Marcelo and Brooks, Chris and Dufour, Alfonso, On the Performance of the Tick Test (August 11, 2011). Available at SSRN: http://ssrn.com/abstract=1891914 or http://dx.doi.org/10.2139/ssrn.1891914

Contact Information

Marcelo Perlin (Contact Author)
Escola de Administração - UFRGS ( email )
Porto-Alegre RS
Brazil
HOME PAGE: http://sites.google.com/site/marceloperlin/
Chris Brooks
University of Reading - ICMA Centre ( email )
Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom
+44 118 931 82 39 (Phone)
+44 118 931 47 41 (Fax)
Alfonso Dufour
University of Reading - Henley Business School, ICMA Centre ( email )
Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom
Feedback to SSRN


Paper statistics
Abstract Views: 772
Downloads: 128
Download Rank: 125,795
References:  19
People who downloaded this paper also downloaded:
1. The Volume Clock: Insights into the High Frequency Paradigm
By David Easley, Marcos Lopez De Prado, ...

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo4 in 0.609 seconds