The Effect of Tick Size on Testing for Nonlinearity in Financial Markets Data

DOI: 10.4236/jmf.2011.11001   PDF   HTML     5,681 Downloads   11,579 Views  

Abstract

The discrete nature of financial markets time-series data may prejudice the BDS and Close Returns test for nonlinearity. Our estimation results suggest that a tick/volatility ratio threshold exists, beyond which the test results are biased. Further, tick/volatility ratios that exceed these thresholds are frequently observed in financial markets data, which suggests that the results of the BDS and CR test must be interpreted with caution.

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H. Mitchell and M. McKenzie, "The Effect of Tick Size on Testing for Nonlinearity in Financial Markets Data," Journal of Mathematical Finance, Vol. 1 No. 1, 2011, pp. 1-7. doi: 10.4236/jmf.2011.11001.

Conflicts of Interest

The authors declare no conflicts of interest.

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