back start next


[start] [1] [2] [3] [4] [5] [6] [7] [8] [9] [ 10 ] [11] [12] [13] [14] [15] [16] [17] [18] [19] [20] [21] [22] [23] [24] [25] [26] [27] [28] [29] [30] [31] [32] [33] [34] [35] [36] [37] [38] [39] [40] [41] [42] [43] [44] [45] [46] [47] [48] [49] [50] [51] [52] [53] [54] [55] [56] [57] [58] [59] [60] [61] [62] [63] [64] [65] [66] [67] [68] [69] [70] [71] [72] [73] [74] [75] [76] [77] [78] [79] [80] [81] [82] [83] [84] [85] [86] [87] [88] [89] [90] [91] [92] [93] [94] [95] [96] [97] [98] [99] [100] [101] [102] [103] [104] [105] [106] [107] [108] [109] [110] [111] [112] [113] [114] [115] [116] [117] [118] [119] [120] [121] [122] [123] [124] [125] [126] [127] [128] [129] [130] [131] [132] [133] [134]


10

1.5 INTERRELATING DIFFERENT TIME SCALES

volatility have been nourishing in the past few years often coming from physicists who started venturing in the field of finance calling themselves "econophysicists." It is a sign that the field is moving toward a better understanding of aggregation properties. Unfortunately, the mathematical theory behind these empirical studies is not yet completely mature and there is still controversy regarding the significance of the scaling properties (LeBaron, 1999a; Bouchaud et al, 2000). Thanks to high-frequency data, this kind of debate can now take place. The challenge is to develop models that simultaneously characterize the short-term and the long-term behaviors of a time series.



MARKETS AND DATA

2.1 general remarks on markets and data types

In the discussion of markets and data, we take the point of view of researchers studying high-frequency data rather than the view of traders or other practitioners. Instead of giving complete descriptions of markets (which are changing over time), we focus on those main markets that have produced consistent time series data over many years.

High-frequency data are direct information from markets. One logical unit of information is called a tick. This term originated from the language of practitioners and originally meant a number on a ticker tape, in a time before computers became an omnipresent tool. The term "tick" is more neutral and general than the particular terms "price," "interest rate," "quote," and so on. Whatever the quoted quantity, there is always a date and a time attached to every tick, a "time stamp." The sequence of time stamps is usually irregularly spaced. A large part of Chapter 3 deals with the consequences of this fact.

The quoted quantities are often prices, but other information such as transaction volume is also available from some markets. Detailed information on participants (e.g., the counterparty of transactions) is, however, rare because market participants often prefer anonymity.



2.1 GENERAL REMARKS ON MARKETS AND DATA TYPES

Some markets are centralized in the form of exchanges or bourses. Other markets are decentralized interbank (over-the-counter) markets, where individual participants directly transact with no intermediary. Data from over-the-counter (OTC) markets are collected and provided in real time by data providers such as Reuters, Bloomberg, or Bridge. Data from centralized markets are available from the same sources and sometimes directly from the exchanges. The recent shift from floor trading to electronic trading helped to make this data more reliable and more easily available. Some data are released to a general audience only after a time delay when its direct value for traders has diminished. Exchanges such as London International Financial Futures Exchange (LIFFE) and the New York Stock Exchange (NYSE) also sell archived historical data, such as data from the TAQ database of the NYSE. There are also vendors of historical data such as O&A specializing in high-frequency data initially collected in real time from different sources.

The foreign exchange (FX) market has the highest market volume of all financial markets. A large part of this volume is traded over-the-counter between banks, but there is also electronic trading through centralized systems. The coexistence of interbank and centralized trading is found also in other markets. This implies that volume figures-if available-often refer to a market segment rather than all transactions of the whole market. Aside from FX, we discuss interest rate, bond, equity, and commodity markets; the latter two are scarcely treated in this book. All of these assets are directly traded in spot markets (see Section 2.1.1) and indirectly in derivative markets: futures and option markets as discussed in Sections 2.1.2 and 2.1.3.

In this book, there is no attempt to list all the changing types and trading mechanisms of markets and all the varying formats and availability conditions of data from different data suppliers. Instead, we report stylized properties of time series data for markets with sampling periods of several years.

2.1.1 Spot Markets

Spot markets are direct markets for primary assets, such as foreign exchange or equity. The assets are traded immediately at the time of the transaction.2 Spot trading is the most original form of trading, but it has some disadvantages. The timing is not flexible, traders have to deal with the physical delivery of the traded assets (such as commodities) and the interest rate spot market is affected by the counterparty default risk. For these reasons, derivative markets have become more important than spot markets in some cases. The FX market is a major example of a market where spot trading is still strong.

A review is provided by Gwilym and Sutcliffc (1999). 2 Transactions are actually booked at the value date, which is usually two days after the day of the spot transaction or, if that is a holiday, the first business day afterward. This fact hardly has an influence on prices, it just affects the timing of bookkeeping. Therefore, value dates can be ignored in most studies.



[start] [1] [2] [3] [4] [5] [6] [7] [8] [9] [ 10 ] [11] [12] [13] [14] [15] [16] [17] [18] [19] [20] [21] [22] [23] [24] [25] [26] [27] [28] [29] [30] [31] [32] [33] [34] [35] [36] [37] [38] [39] [40] [41] [42] [43] [44] [45] [46] [47] [48] [49] [50] [51] [52] [53] [54] [55] [56] [57] [58] [59] [60] [61] [62] [63] [64] [65] [66] [67] [68] [69] [70] [71] [72] [73] [74] [75] [76] [77] [78] [79] [80] [81] [82] [83] [84] [85] [86] [87] [88] [89] [90] [91] [92] [93] [94] [95] [96] [97] [98] [99] [100] [101] [102] [103] [104] [105] [106] [107] [108] [109] [110] [111] [112] [113] [114] [115] [116] [117] [118] [119] [120] [121] [122] [123] [124] [125] [126] [127] [128] [129] [130] [131] [132] [133] [134]