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Comparing High Frequency Data of Stocks that are Traded Simultaneously in the US and Germany: Simulated Versus Empirical Data

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  • Jörg Rieger
  • Kirsten Rüchardt
  • Bodo Vogt

Abstract

This paper investigates both the no-arbitrage condition and the efficiency of financial markets by comparing two stock markets: NYSE and XETRA. We analyze German stocks that are traded simultaneously at both exchanges using high frequency data for XETRA, NYSE, and the foreign exchange rates. Converting Euro-prices into Dollar-prices and vice versa reveals possibilities to explore the efficiency as well as arbitrage opportunities of these two stock markets. One measure of efficiency is the phenomenon of stock price clustering, describing the tendency of prices to cluster at certain prices and avoiding others. We see the result of differing extents of clustering on both exchanges, thus violating the no-arbitrage condition. We propose a trading strategy that exploits these differences. Furthermore, we compare our empirical findings with the results we obtain from simulating financial markets. We conclude that simulations that are based on the no-arbitrage condition are not consistent with our empirical observations. Copyright Eurasia Business and Economics Society 2011

Suggested Citation

  • Jörg Rieger & Kirsten Rüchardt & Bodo Vogt, 2011. "Comparing High Frequency Data of Stocks that are Traded Simultaneously in the US and Germany: Simulated Versus Empirical Data," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 1(2), pages 126-142, December.
    • Handle: RePEc:spr:eurase:v:1:y:2011:i:2:p:126-142
    DOI: 10.14208/BF03353827
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    References listed on IDEAS

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    2. Xu, Yahua & Bouri, Elie & Saeed, Tareq & Wen, Zhuzhu, 2020. "Intraday return predictability: Evidence from commodity ETFs and their related volatility indices," Resources Policy, Elsevier, vol. 69(C).

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    More about this item

    Keywords

    Financial markets; Simulation; No-arbitrage condition; Stochastic processes; C00; D40; G12;
    All these keywords.

    JEL classification:

    • C00 - Mathematical and Quantitative Methods - - General - - - General
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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