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

See all articles by Shanshan Wang

Shanshan Wang

Faculty of Physics, University of Duisburg-Essen

Rudi Schäfer

University of Duisburg-Essen

Thomas Guhr

University of Duisburg-Essen

Date Written: April 25, 2016

Abstract

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

Wang, Shanshan and Schäfer, Rudi and Guhr, Thomas, Cross-Response in Correlated Financial Markets: Individual Stocks (April 25, 2016). Eur. Phys. J. B (2016) 89: 105. Available at SSRN: https://ssrn.com/abstract=2892260 or http://dx.doi.org/10.2139/ssrn.2892260

Shanshan Wang (Contact Author)

Faculty of Physics, University of Duisburg-Essen ( email )

Lotharstrasse 1
Duisburg, 47048
Germany

Rudi Schäfer

University of Duisburg-Essen ( email )

Lotharstrasse 1
Duisburg, 47048
Germany

Thomas Guhr

University of Duisburg-Essen ( email )

Lotharstrasse 1
Duisburg, 47048
Germany

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