Cross-response in correlated financial markets: individual stocks
Fakultät für Physik, Universität Duisburg-Essen,
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Received in final form: 4 March 2016
Published online: 20 April 2016
Previous studies of the stock price response to trades focused on the dynamics of single stocks, i.e. they addressed the self-response. We empirically investigate the price response of one stock to the trades of other stocks in a correlated market, i.e. the cross-responses. How large is the impact of one stock on others and vice versa? – This impact of trades on the price change across stocks appears to be transient instead of permanent as we discuss from the viewpoint of market efficiency. Furthermore, we compare the self-responses on different scales and the self- and cross-responses on the same scale. We also find that the cross-correlation of the trade signs turns out to be a short-memory process.
Key words: Statistical and Nonlinear Physics
© EDP Sciences, Società Italiana di Fisica, Springer-Verlag, 2016