How Lead-Lag Correlations Affect the Intraday Pattern of Collective Stock Dynamics

43 Pages Posted: 22 Aug 2015 Last revised: 23 Jun 2019

See all articles by Chester Curme

Chester Curme

Boston University

Michele Tumminello

University of Palermo; Carnegie Mellon University - Department of Social and Decision Sciences

Rosario N. Mantegna

University of Palermo

H. Eugene Stanley

Boston University - Center for Polymer Studies

Dror Y. Kenett

Financial Industry Regulatory Authority (FINRA); Johns Hopkins University

Date Written: June 21, 2019

Abstract

Properly estimating correlations and understanding how they change under different economic conditions plays a key role in asset pricing models, risk management, and many econometric models. In this paper we introduce a robust framework to identify a meaningful correlation relationship, address different types of correlations and their interplay, and address correlations across different time scales. First, we present a methodological framework to estimate synchronous, lagged, and autocorrelations for stock price return time series, and validate their statistical significance across different time horizons. Second, we explore the interplay between these different co-movement relationships, using a model to uncouple the factors contributing to the intraday pattern of contemporaneous correlations, including volatility, autocorrelations and lagged cross-correlations. Third, we use the methodological framework to investigate correlations between stocks traded on the New York Stock Exchange in the periods 2001-03 and 2011-13, and provide insights on how correlations and their dynamics have changed over time.

Keywords: Financial markets, Market structure, Correlation analysis, Epps effect, Lead-lag

JEL Classification: G21, D85, N26, G18

Suggested Citation

Curme, Chester and Tumminello, Michele and Mantegna, Rosario Nunzio and Stanley, H. Eugene and Kenett, Dror Y., How Lead-Lag Correlations Affect the Intraday Pattern of Collective Stock Dynamics (June 21, 2019). Available at SSRN: https://ssrn.com/abstract=2648490 or http://dx.doi.org/10.2139/ssrn.2648490

Chester Curme

Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

Michele Tumminello

University of Palermo ( email )

Viale delle Scienza
Palermo, Palermo 90128
Italy

Carnegie Mellon University - Department of Social and Decision Sciences ( email )

Pittsburgh, PA 15213-3890
United States

Rosario Nunzio Mantegna

University of Palermo ( email )

Dipartimento di Fisica e Chimica
Viale delle Scienze, Edificio 18
Palermo, PA I-90128
Italy
+3909123899074 (Phone)
+3909123860815 (Fax)

HOME PAGE: http://www.unipa.it/persone/docenti/m/rosario.mantegna

H. Eugene Stanley

Boston University - Center for Polymer Studies ( email )

Boston, MA 02215
United States

Dror Y. Kenett (Contact Author)

Financial Industry Regulatory Authority (FINRA) ( email )

Washington, DC
United States

Johns Hopkins University ( email )

Baltimore, MD 20036-1984
United States

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