Optimal Cross-Correlation Estimates from Asynchronous Tick-by-Tick Trading Data

Abstract

Given two time series, A and B, sampled asynchronously at different times t_A_i and t_B_j, termed "ticks", how can one best estimate the correlation coefficient between changes in A and B? We derive a natural, minimum-variance estimator that does not use any interpolation or binning, then derive from it a fast (linear time) estimator that is demonstrably nearly as good. This "fast tickwise estimator" is compared in simulation to the usual method of interpolating changes to a regular grid. Even when the grid spacing is optimized for the particular parameters (not often possible in practice), the fast tickwise estimator has generally smaller estimation errors, often by a large factor. These results are directly applicable to tick-by-tick price data of financial assets.

Tasks

Reproductions