High-Frequency Lead-Lag Effects and Cross-Asset Linkages: A Multi-Asset Lagged Adjustment Model. Issue 3 (3rd July 2021)

• Record Type: Journal Article
• Authors: Buccheri, Giuseppe; Corsi, Fulvio; Peluso, Stefano
• Is Part Of: Journal of business & economic statistics. Volume 39:Issue 3(2021)
• Page Start: 605
• Page End: 621
• Publication Date: 2021-07-03
• Subjects: Asynchronous trading -- Cross-asset trading -- Granger causality -- Microstructure noise -- Price discovery; Economics -- Statistical methods -- Periodicals; Commercial statistics -- Periodicals; Économie politique -- Méthodes statistiques -- Périodiques; Statistique commerciale -- Périodiques; 330.015195
• DOI: 10.1080/07350015.2019.1697699
• Languages: English
• ISSNs: 0735-0015

Abstract

Abstract: Motivated by the empirical evidence of high-frequency lead-lag effects and cross-asset linkages, we introduce a multi-asset price formation model which generalizes standard univariate microstructure models of lagged price adjustment. Econometric inference on such model provides: (i) a unified statistical test for the presence of lead-lag correlations in the latent price process and for the existence of a multi-asset price formation mechanism; (ii) separate estimation of contemporaneous and lagged dependencies; (iii) an unbiased estimator of the integrated covariance of the efficient martingale price process that is robust to microstructure noise, asynchronous trading, and lead-lag dependencies. Through an extensive simulation study, we compare the proposed estimator to alternative approaches and show its advantages in recovering the true lead-lag structure of the latent price process. Our application to a set of NYSE stocks provides empirical evidence for the existence of a multi-asset price formation mechanism and sheds light on its market microstructure determinants. Supplementary materials for this article are available online.