Modeling the Epps effect of cross correlations in asset prices

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dc.creatorToth, Bence
dc.creatorToth, Balint
dc.creatorKertesz, Janos
dc.date2007-04-28
dc.date.accessioned2026-07-07T12:27:46Z
dc.date.available2026-07-07T12:27:46Z
dc.descriptionWe review the decomposition method of stock return cross-correlations, presented previously for studying the dependence of the correlation coefficient on the resolution of data (Epps effect). Through a toy model of random walk/Brownian motion and memoryless renewal process (i.e. Poisson point process) of observation times we show that in case of analytical treatability, by decomposing the correlations we get the exact result for the frequency dependence. We also demonstrate that our approach produces reasonable fitting of the dependence of correlations on the data resolution in case of empirical data. Our results indicate that the Epps phenomenon is a product of the finite time decay of lagged correlations of high resolution data, which does not scale with activity. The characteristic time is due to a human time scale, the time needed to react to news.
dc.descriptionto appear in the Proceedings of SPIE Fluctuations and Noise 2007
dc.identifierhttps://arxiv.org/abs/0704.3798
dc.identifierhttp://arxiv.org/abs/0704.3798
dc.identifierProc. SPIE, Vol. 6601, 66010J (2007)
dc.identifierdoi:10.1117/12.727127
dc.identifier.urihttp://salesiana.dossiersoluciones.com/handle/123456789/215318
dc.subjectStatistical Finance
dc.subjectData Analysis, Statistics and Probability
dc.subjectPhysics and Society
dc.titleModeling the Epps effect of cross correlations in asset prices
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