Abstract
We propose a novel framework to investigate lead-lag relationships between two financial assets. Our framework bridges a gap between continuous-time modeling based on Brownian motion and the existing wavelet methods for lead-lag analysis based on discrete-time models and enables us to analyze the multiscale structure of lead-lag effects. We also present a statistical methodology for the scale-by-scale analysis of lead-lag effects in the proposed framework and develop an asymptotic theory applicable to a situation including stochastic volatilities and irregular sampling. Finally, we report several numerical experiments to demonstrate how our framework works in practice.
Original language | English |
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Pages (from-to) | 1208-1248 |
Number of pages | 41 |
Journal | SIAM Journal on Financial Mathematics |
Volume | 9 |
Issue number | 4 |
DOIs | |
Publication status | Published - 2018 |
Keywords
- Brownian motion
- High-frequency data
- Lead-lag effect
- Multiscale modeling
- Wavelet
ASJC Scopus subject areas
- Numerical Analysis
- Finance
- Applied Mathematics