Bridging the Gap: Decoding the Intrinsic Nature of Time in Market Data

15 Pages Posted: 28 Dec 2022

Date Written: April 7, 2022

Abstract

Intrinsic time is an example of an event-based conception of time, used to analyze financial time series. Here, for the first time, we reveal the connection between intrinsic time and physical time. In detail, we present an analytic relationship which links the two different time paradigms. Central to this discovery are the emergence of scaling laws. Indeed, a novel empirical scaling law is presented, relating to the variability of what is known as overshoots in the intrinsic time framework. To evaluate the validity of the theoretically derived expressions, three time series are analyzed; in detail, Brownian motion and two tick-by-tick empirical currency market data sets (one crypto and one fiat). Finally, the time series analyzed in physical time can be decomposed into their liquidity and volatility components, both only visible in intrinsic time, further highlighting the utility of this temporal kinship.

Keywords: scaling laws, physical time, intrinsic time, event-based time, time series analysis, financial data, Brownian motion, ETH/USDT, USD/JPY

Suggested Citation

Glattfelder, James and Golub, Anton, Bridging the Gap: Decoding the Intrinsic Nature of Time in Market Data (April 7, 2022). Available at SSRN: https://ssrn.com/abstract=4308220 or http://dx.doi.org/10.2139/ssrn.4308220

James Glattfelder

Department of Banking and Finance, UZH ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

HOME PAGE: http://www.bf.uzh.ch/cms/en/glattfelder.james.html

Anton Golub (Contact Author)

AvG ( email )

Zurich
Switzerland

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