Correlation estimation using components of Japanese candlesticks. Issue 10 (2nd October 2016)

• Record Type: Journal Article
• Authors: Popov, V.
• Is Part Of: Quantitative finance. Volume 16:Issue 10(2016)
• Page Start: 1615
• Page End: 1630
• Publication Date: 2016-10-02
• Subjects: Japanese candlesticks -- Correlation -- Estimation -- Brownian motion -- Jump diffusions; C49 -- G10; Finance -- Periodicals; Business mathematics -- Periodicals; Finance -- Mathematical models -- Periodicals; Investments -- Mathematics -- Periodicals; Economics -- Periodicals; Finances -- Modèles mathématiques -- Périodiques; 332.015118
• DOI: 10.1080/14697688.2016.1157625
• Languages: English
• ISSNs: 1469-7688

Abstract

Abstract : Using the wick's difference from the classical Japanese candlestick representation of daily open, high, low, close prices brings efficiency when estimating the correlation in a bivariate Brownian motion. An interpretation of the correlation estimator given in [Rogers, L.C.G. and Zhou, F., Estimating correlation from high, low, opening and closing prices. Ann. Appl. Probab., 2008, 18 (2), 813–823] in the light of wicks' difference allows us to suggest modifications, which lead to an increased efficiency and robustness over the baseline model. An empirical study of four major financial markets confirms the advantages of the modified estimator.