Serial correlation coefficients, correlograms and periodograms are computed by taking cross products over fixed or variable time intervals. I believe a more salient way to do it for markets might be a variant of computing them with respect to price intervals.

On the same front, the empirical chance of the market's closing exactly unchanged, or very close, is much higher than would be expected from chance. And what does this indicate for the future? An idea comes from the expected utility of a vote in a election, its being very low considering the chances that you would cast the deciding vote.

The economy in England showed much vibrancy while I was there and all taxi drivers said that in the last two weeks there had been a marked improvement in activity from its previous relatively high levels. Perhaps taxi drivers should join truck drivers as opinion leaders to tally when looking for leading indicators of the economy's health.





Speak your mind

4 Comments so far

  1. Don Chu on September 28, 2009 10:48 pm

    A possibly more salient and 'robust' method of performing price interval sampling and analysis may be through Quantile Regression techniques. While quantile regression may have thus far been utilized more expediently in the natural sciences, and within the realm of social sciences and economics, been limited to work on labour and wage economics, there have been increasing applications on its use on empirical finance (beyond applications to conditional-VaR), including financial returns forecasting and portfolio construction (Ma and Pohlman, 2005).

    Here is a not-new paper by Koenker and Xiao, building on Koenker's long work on quantile regression: Quantile Autoregression (2006). The paper demonstrates interesting empirical application of quantile regression on two data series: unemployment rates and retail gasoline prices, towards investigating asymmetry, persistency and excursions from stationarity.

    And indeed, there is a tendency for the market (or all things) in "closing exactly unchanged, or very close", through that natural and compensatory returning motion.

    "There exists a natural movement tending towards the identical which, by observing the law of limit, returns on itself, thus giving rise to circles and other round figures."
    -the Pythagorean Archytas, from Aristotle's "Problemata"

  2. Craig Mee on September 29, 2009 4:20 am

    taxi drivers' opinions are most probably a good idea, as they are generally underbid in their outlook, as they have a vested interest in being to the negative, thus attracted a bigger tip.

  3. curmudgeon 3256 on September 29, 2009 7:57 am

    The frequent tendency for the market to close nearly unchanged can be seen as another manifestation of leptokurtosis: the center of the probability density is fat, the midrange on either side is thin and the tails again too fat (compared to the Gaussian). That is a basic property of such densities, but not one that people talk much about as they concentrate on the tails.

  4. vic niederhoffer on September 29, 2009 9:42 am

    one has discovered the realization of these tendencies to one's cost, in recent years, but still demurs. vic


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