Epps effect

In econometrics and time series analysis, the Epps effect, named after T. W. Epps, is the phenomenon that the empirical correlation between the returns of two different stocks decreases as the sampling frequency of data increases. The phenomenon is caused by non-synchronous/asynchronous trading ^[1] and discretization effects.^[2] However, a current study shows that the effect originates in investors' herd behaviour.^[3]

References

^ Epps, T.W. (1979) Comovements in Stock Prices in the Very Short Run, Journal of the American Statistical Association, 74, 291–298. jstor
^ M. C. Münnix et al (2010) Impact of the tick-size on financial returns and correlations, Physica A, 389 (21) 4828–4843. arxiv
^ http://iopscience.iop.org/1367-2630/16/5/053040 - Modelling the short term herding behaviour of stock markets

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[1] Epps, T.W. (1979) Comovements in Stock Prices in the Very Short Run, Journal of the American Statistical Association, 74, 291–298. jstor

[2] M. C. Münnix et al (2010) Impact of the tick-size on financial returns and correlations, Physica A, 389 (21) 4828–4843. arxiv

[3] ttp://iopscience.iop.org/1367-2630/16/5/053040 - Modelling the short term herding behaviour of stock markets

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