High-Frequency Lead-Lag Effects and Cross-Asset Linkages: a Multi-Asset Lagged Adjustment Model

35 Pages Posted: 23 Mar 2017 Last revised: 19 Apr 2018

See all articles by Giuseppe Buccheri

Giuseppe Buccheri

Scuola Normale Superiore

Fulvio Corsi

University of Pisa - Department of Economics; City University London

Stefano Peluso

University of Lugano and Swiss Finance Institute

Date Written: April 2018

Abstract

Motivated by the empirical evidence of high-frequency lead-lag effects and cross-asset linkages, we introduce a multi-asset price formation model which generalizes standard univariate microstructure models of lagged price adjustment. Econometric inference on such a model provides: (i) a unified statistical test for the presence of lead-lag correlations in latent price processes and for the existence of a multi-asset price formation mechanism; (ii) separate estimation of contemporaneous and lagged dependencies; (iii) an unbiased estimator of the integrated covariance of the efficient martingale price process that is robust to microstructure noise, asyncronicity and lead-lag dependencies. Through an extensive simulation study, we compare the proposed estimator to alternative approaches and show its advantages in recovering the true lead-lag structure of the latent price process. Our application to a set of NYSE stocks provides empirical evidence for the existence of a multi-asset price formation mechanism and sheds light on its market microstructure determinants.

Keywords: price discovery, microstructure noise, asynchronicity, quadratic covariation, Kalman filter, Granger causality

JEL Classification: C32, C58, G14

Suggested Citation

Buccheri, Giuseppe and Corsi, Fulvio and Peluso, Stefano, High-Frequency Lead-Lag Effects and Cross-Asset Linkages: a Multi-Asset Lagged Adjustment Model (April 2018). Available at SSRN: https://ssrn.com/abstract=2938619 or http://dx.doi.org/10.2139/ssrn.2938619

Giuseppe Buccheri (Contact Author)

Scuola Normale Superiore ( email )

Piazza dei Cavalieri, 7
Pisa, 56126
Italy
+39 3341046378 (Phone)

Fulvio Corsi

University of Pisa - Department of Economics ( email )

via Ridolfi 10
I-56100 Pisa, PI 56100
Italy

HOME PAGE: http://people.unipi.it/fulvio_corsi/

City University London ( email )

Northampton Square
London, EC1V OHB
United Kingdom

Stefano Peluso

University of Lugano and Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

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