Inference for Time-Varying Lead-Lag Relationships from Ultra High Frequency Data
40 Pages Posted: 2 Mar 2017
Date Written: February 28, 2017
A new approach for modeling lead-lag relationships in high frequency financial markets is proposed. The model is accommodated to non-synchronous trading and market microstructure noise as well as intraday variations of lead-lag relationships, which are essential for empirical applications. A simple statistical methodology for analyzing the proposed model is presented as well. The methodology is illustrated by an empirical study to detect lead-lag relationships between the S&P 500 index and its two derivative products.
Keywords: High-Frequency Data, Lead-Lag Relationship, Microstructure Noise, Non-Synchronous Observations, Semimartingale, Stable Convergence
JEL Classification: C14, C51, C58
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