Cross-Response in Correlated Financial Markets: Individual Stocks
Eur. Phys. J. B (2016) 89: 105
17 Pages Posted: 5 Jan 2017 Last revised: 7 Jan 2017
Date Written: April 25, 2016
Previous studies of the stock price response to trades focused on the dynamics of single stocks, i.e. they addressed the self-response. We empirically investigate the price response of one stock to the trades of other stocks in a correlated market, i.e. the cross-responses. How large is the impact of one stock on others and vice versa? This impact of trades on the price change across stocks appears to be transient instead of permanent as we discuss from the viewpoint of market efficiency. Furthermore, we compare the self-responses on different scales and the self- and cross-responses on the same scale. We also find that the cross-correlation of the trade signs turns out to be a short-memory process.
Keywords: cross-impact, market microstructure, statistical analysis, complex systems, econophysics
JEL Classification: G12, C81, G14
Suggested Citation: Suggested Citation