A CLOSER LOOK AT THE EPPS EFFECT

• DOI: 10.1142/s0219024903001839
• Publication Date: 2003-01-24T05:49:23Z
• Authors: ROBERTO RENÒ
• Keywords: Technical analysis; Synchronicity; Stock (firearms)

Epps [17] reported empirical evidence that stock correlations decrease when sampling frequency increases. This phenomenon, named effect, has been observed in several markets. In this paper, the dynamics underlying effect are investigated. Using Monte Carlo simulations and analysis of high foreign exchange rate price data, it is shown can largely be explained by two factors: non-synchronicity observations existing lead-lag relationship between asset prices. order to compute co-volatilities, an original method based upon Fourier adopted. performs well estimating precisely, as illustrated simulated experiments. Being naturally embedded domain, estimator suited study effect.