Increasing market efficiency: Evolution of cross-correlations of stock returns

Bence Tóth*, János Kertész

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract (may include machine translation)

We analyse the temporal changes in the cross-correlations of returns on the New York Stock Exchange. We show that lead-lag relationships between daily returns of stocks vanished in less than 20 years. We have found that even for high-frequency data the asymmetry of time-dependent cross-correlation functions has a decreasing tendency, the position of their peaks is shifted towards the origin while these peaks become sharper and higher, resulting in a diminution of the Epps effect. All these findings indicate that the market becomes increasingly efficient.

Original languageEnglish
Pages (from-to)505-515
Number of pages11
JournalPhysica A: Statistical Mechanics and its Applications
Volume360
Issue number2
DOIs
StatePublished - 1 Feb 2006
Externally publishedYes

Keywords

  • Correlations
  • Epps effect
  • Market efficiency

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