Price Clustering and Discreteness: Is There Chaos Behind the Noise?

University of Durham Economics and Finance Working Paper

20 Pages Posted: 26 Jul 2004

See all articles by Costas E. Vorlow

Costas E. Vorlow

affiliation not provided to SSRN

Antonios Antoniou

Wealth Associates

Date Written: July 19, 2004

Abstract

We investigate the compass rose (Crack, T.F. and Ledoit, O. (1996), Journal of Finance, 51(2), pg. 751-762) patterns revealed in phase portraits (delay plots) of stock returns. The structures observed in these diagrams have been attributed mainly to price clustering and discreteness. Using wavelet based denoising, we examine the noise-free versions of a set of FTSE100 stock returns time series. We reveal evidence of non-periodic cyclical dynamics. As a second stage, we apply Surrogate Data Analysis on the original and denoised stock returns. Our results suggest that there is a strong nonlinear and possibly deterministic signature in the data generating processes of the stock returns sequences.

Keywords: Price discreteness, microstructure, wavelets, noise reduction, complexity, nonlinearity, surrogate data analysis, chaotic dynamics

JEL Classification: G10, G12, G22

Suggested Citation

Vorlow, Constantinos Euripides and Antoniou, Antonios, Price Clustering and Discreteness: Is There Chaos Behind the Noise? (July 19, 2004). University of Durham Economics and Finance Working Paper. Available at SSRN: https://ssrn.com/abstract=558303 or http://dx.doi.org/10.2139/ssrn.558303

Constantinos Euripides Vorlow (Contact Author)

affiliation not provided to SSRN

Antonios Antoniou

Wealth Associates ( email )

Alpine House,
Honeypot Lane
London, NW9 9RX
United Kingdom

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