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Risks 2016, 4(3), 27;

Lead–Lag Relationship Using a Stop-and-Reverse-MinMax Process

Institut für Mathematik, RWTH Aachen, Templergraben 55, D-52062 Aachen, Germany
Author to whom correspondence should be addressed.
These authors contributed equally to this work.
Academic Editor: Alexander Szimayer
Received: 19 February 2016 / Revised: 24 June 2016 / Accepted: 4 July 2016 / Published: 7 July 2016
(This article belongs to the Special Issue Applying Stochastic Models in Practice: Empirics and Numerics)
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The intermarket analysis, in particular the lead–lag relationship, plays an important role within financial markets. Therefore, a mathematical approach to be able to find interrelations between the price development of two different financial instruments is developed in this paper. Computing the differences of the relative positions of relevant local extrema of two charts, i.e., the local phase shifts of these price developments, gives us an empirical distribution on the unit circle. With the aid of directional statistics, such angular distributions are studied for many pairs of markets. It is shown that there are several very strongly correlated financial instruments in the field of foreign exchange, commodities and indexes. In some cases, one of the two markets is significantly ahead with respect to the relevant local extrema, i.e., there is a phase shift unequal to zero between them. View Full-Text
Keywords: lead–lag relationship; intermarket analysis; local extrema; empirical distribution lead–lag relationship; intermarket analysis; local extrema; empirical distribution

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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited (CC BY 4.0).

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Maier-Paape, S.; Platen, A. Lead–Lag Relationship Using a Stop-and-Reverse-MinMax Process. Risks 2016, 4, 27.

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