Can We Make Money with Fifth-order Autocorrelation in Japanese Stock Prices?

We first report that one-minute returns on TOPIX have exhibited significant autocorrelation at five-minute intervals since 1997/98, which implies there is an arbitrage opportunity. Special quotes that are issued whenever there is a price jump in excess of a predetermined band seem to be the source o...

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Bibliographic Details
Published inIDEAS Working Paper Series from RePEc
Main Authors Tsutsui, Yoshiro, Hirayama, Kenjiro, Takahiro TanakaAuthor-Name, Uesugi, Nobutaka
Format Paper
LanguageEnglish
Published St. Louis Federal Reserve Bank of St. Louis 01.01.2005
Subjects
Arbitrage
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Summary:We first report that one-minute returns on TOPIX have exhibited significant autocorrelation at five-minute intervals since 1997/98, which implies there is an arbitrage opportunity. Special quotes that are issued whenever there is a price jump in excess of a predetermined band seem to be the source of this autocorrelation, since these have been updated at five-minute intervals since August 1998. Individual stock returns also exhibit fifth-order autocorrelation, but this disappears when the data with special quotes are excluded from the sample. The arbitrage opportunities, however, turn out to be spurious since trading is suspended whenever a special quote is issued.