Article1999

A Transactions Data Analysis of Nonsynchronous Trading

Gregory B. Kadlec · Douglas M. Patterson

91 citations0/0 files storedReview of Financial Studies

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Financial Markets and Investment Strategies Stochastic processes and financial applications Financial Risk and Volatility Modeling

Abstract

Weekly returns of stock portfolios exhibit substantial autocorrelation. Analytical studies suggest that nonsynchronous trading is capable of explaining from 5% to 65% of the autocorrelation. The varying importance of nonsynchronous trading in these studies arises primarily from differing assumptions regarding nontrading periods of stocks. We simulate the effects of nonsynchronous trading by sampling stock returns from a return generating process using transactions data to obtain the precise time of each stock's last trade. We find that simulated weekly portfolio returns exhibit autocorrelations that are roughly 25% that of their observed (CRSP) weekly returns.

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References

1965The Behavior of Stock-Market Prices 2012The Econometrics of Financial Markets 1997The Econometrics of Financial Markets 1979Risk measurement when shares are subject to infrequent trading 1977Estimating betas from nonsynchronous data 1980Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis 1986Predicting returns in the stock and bond markets 1990When Are Contrarian Profits Due to Stock Market Overreaction?

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