Cross-correlations between volume change and price change

Scientific paper - Original scientific paper

• Author: Boris Podobnik
• Author: Davor Horvatić
• Author: Alexander M. Petersen
• Author: H. Eugene Stanley
• Author's institution: University of Zagreb; Faculty of Science; (Department of Physics)
• Scientific / art field, discipline and subdiscipline: NATURAL SCIENCES; Physics

Abstract (english)

In finance, one usually deals not with prices but with growth rates R, defined as the difference in logarithm between two consecutive prices. Here we consider not the trading volume, but rather the volume growth rate R̃, the difference in logarithm between two consecutive values of trading volume. To this end, we use several methods to analyze the properties of volume changes |R̃|, and their relationship to price changes |R|. We analyze 14,981 daily recordings of the Standard and Poor's (S & P) 500 Index over the 59-year period 1950–2009, and find power-law cross-correlations between |R| and |R̃| by using detrended cross-correlation analysis (DCCA). We introduce a joint stochastic process that models these cross-correlations. Motivated by the relationship between |R| and |R̃|, we estimate the tail exponent α̃ of the probability density function P(|R̃|) ∼ |R̃|−1−α̃ for both the S & P 500 Index as well as the collection of 1819 constituents of the New York Stock Exchange Composite Index on 17 July 2009. As a new method to estimate α̃, we calculate the time intervals τq between events where R̃ > q. We demonstrate that τ̃q, the average of τq, obeys τ̃q ∼ qα̃. We find α̃ ≈ 3. Furthermore, by aggregating all τq values of 28 global financial indices, we also observe an approximate inverse cubic law.

• Keywords (english): econophysics; finance; volatility; trading volume; process; cross-correlations
• Language: english
• Publication type: Scientific paper - Original scientific paper
• Publication status: Published
• Peer review: Peer review - international
• Publication version: Published version
• Journal title: Proceedings of the National Academy of Sciences of the United States of America
• Numbering: vol. 106, no. 52, pp. 22079-22084
• p-ISSN: 0027-8424
• DOI: https://doi.org/10.1073/pnas.0911983106
• URN:NBN: urn:nbn:hr:217:581748
• Publication: 2009
• Project: Number: 119-0982930-1016; Title (croatian): Elementarne čestice, teorija polja i kozmologija; Leader: Ivica Picek; Jurisdiction: Croatia; Funding stream: ZP
• Document URL: http://dx.doi.org/10.1073/pnas.0911983106
• Type of resource: Text
• Access conditions: Open access
• Public note: © 2009 National Academy of Sciences. Freely available online through the PNAS open access option. Contributed by H. Eugene Stanley, October 22, 2009 (sent for review September 19, 2009). Published online before print on December 15, 2009.
• Created on: 2019-10-31 19:27:05