The University of Southampton
University of Southampton Institutional Repository

Ultra-high-frequency lead-lag relationship and information arrival

Ultra-high-frequency lead-lag relationship and information arrival
Ultra-high-frequency lead-lag relationship and information arrival
To our knowledge, this paper is the first study on the effect of information arrival on the lead–lag relationship amongst related spot instruments. Based on a large data-set of ultra-high-frequency transaction prices time-stamped to the millisecond of the S&P500 index and its two most liquid tracking ETFs, we find that their lead–lag relationship is affected by the rate of information arrival whose proxy is the unexpected trading volume of these instruments. Specifically, when information arrives, the leadership of the leading instrument may strengthen or weaken depending on whether the leading or lagging instrument responds to that information. An increase in the unexpected volume of the leader strengthens its leadership whereas an increase in the unexpected volume of the lagger weakens this leadership. In addition to the strength of leadership, an increase in the unexpected volume in response to information arrival may also have opposite effects on the lead–lag correlation coefficient depending on whether that volume increase belongs to the leader or the lagger. Finally, we find that sophisticated investors have a more significant effect on the lead–lag relationship than non-sophisticated ones.
1469-7688
1-11
Dao, Thong, Minh
f3e73ed8-7d99-4f3e-96c2-c966e10541cf
McGroarty, Frank
693a5396-8e01-4d68-8973-d74184c03072
Urquhart, Andrew
ee369df1-95b5-4cdf-bc24-f1be77357c03
Dao, Thong, Minh
f3e73ed8-7d99-4f3e-96c2-c966e10541cf
McGroarty, Frank
693a5396-8e01-4d68-8973-d74184c03072
Urquhart, Andrew
ee369df1-95b5-4cdf-bc24-f1be77357c03

Dao, Thong, Minh, McGroarty, Frank and Urquhart, Andrew (2018) Ultra-high-frequency lead-lag relationship and information arrival. Quantitative Finance, 1-11. (doi:10.1080/14697688.2017.1414484).

Record type: Article

Abstract

To our knowledge, this paper is the first study on the effect of information arrival on the lead–lag relationship amongst related spot instruments. Based on a large data-set of ultra-high-frequency transaction prices time-stamped to the millisecond of the S&P500 index and its two most liquid tracking ETFs, we find that their lead–lag relationship is affected by the rate of information arrival whose proxy is the unexpected trading volume of these instruments. Specifically, when information arrives, the leadership of the leading instrument may strengthen or weaken depending on whether the leading or lagging instrument responds to that information. An increase in the unexpected volume of the leader strengthens its leadership whereas an increase in the unexpected volume of the lagger weakens this leadership. In addition to the strength of leadership, an increase in the unexpected volume in response to information arrival may also have opposite effects on the lead–lag correlation coefficient depending on whether that volume increase belongs to the leader or the lagger. Finally, we find that sophisticated investors have a more significant effect on the lead–lag relationship than non-sophisticated ones.

Text
Lead-lag effect of equity ETFs 5 - Accepted Manuscript
Download (263kB)

More information

Accepted/In Press date: 5 December 2017
e-pub ahead of print date: 23 January 2018

Identifiers

Local EPrints ID: 416229
URI: http://eprints.soton.ac.uk/id/eprint/416229
ISSN: 1469-7688
PURE UUID: a2cd6783-d43f-4a98-aa9e-4606e092467f
ORCID for Frank McGroarty: ORCID iD orcid.org/0000-0003-2962-0927
ORCID for Andrew Urquhart: ORCID iD orcid.org/0000-0001-8834-4243

Catalogue record

Date deposited: 08 Dec 2017 17:30
Last modified: 07 Oct 2020 06:08

Export record

Altmetrics

Download statistics

Downloads from ePrints over the past year. Other digital versions may also be available to download e.g. from the publisher's website.

View more statistics

Atom RSS 1.0 RSS 2.0

Contact ePrints Soton: eprints@soton.ac.uk

ePrints Soton supports OAI 2.0 with a base URL of http://eprints.soton.ac.uk/cgi/oai2

This repository has been built using EPrints software, developed at the University of Southampton, but available to everyone to use.

We use cookies to ensure that we give you the best experience on our website. If you continue without changing your settings, we will assume that you are happy to receive cookies on the University of Southampton website.

×