Hidden Leaders: Identifying High-Frequency Lead-Lag Structures in a Multivariate Price Formation Framework

Buccheri, Giuseppe; Corsi, Fulvio; Peluso, Stefano

doi:10.2139/ssrn.2938619

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2019

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“…Rather recently, Hoffmann et al [26] have proposed a lead-lag model in continuous-time (see also Robert and Rosenbaum [45]), which is based on Brownian motion driven modeling and contains traditional Itô processes as a special case, hence it is readily compatible with the traditional mathematical finance theory. Related models have been subsequently studied by several authors such as [1,5,7,27] for empirical work and [6,11,23,24,34,35] from a statistical point of view, but there is no work in the context of mathematical finance. We intend to bridge the gap between those two areas in this work.…”

Section: Introductionmentioning

confidence: 99%

No arbitrage and lead–lag relationships

Hayashi

Koike

2019

Statistics & Probability Letters

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The existence of time-lagged cross-correlations between the returns of a pair of assets, which is known as the lead-lag relationship, is a well-known stylized fact in financial econometrics. Recently some continuous-time models have been proposed to take account of the lead-lag relationship. Such a model does not follow a semimartingale as long as the lead-lag relationship is present, so it admits an arbitrage without market frictions. In this paper we show that they are free of arbitrage if we take account of market frictions such as the presence of minimal waiting time on subsequent transactions or transaction costs.

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