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A directional-change event approach for studying financial time series

Author

Listed:
  • Aloud, Monira
  • Tsang, Edward
  • Olsen, Richard
  • Dupuis, Alexandre

Abstract

Financial markets witness high levels of activity at certain times but remain calm at others. This makes the flow of physical time discontinuous. Therefore, to use physical time scales for studying financial time series runs the risk of missing important activities. An alternative approach is to use an event-based time scale that captures periodic activities in the market. In this paper, the authors use a special type of event, called a directional-change event, and show its usefulness in capturing periodic market activities. The study confirms that the length of the price-curve coastline, as defined by directional-change events, turns out to be a long one.

Suggested Citation

  • Aloud, Monira & Tsang, Edward & Olsen, Richard & Dupuis, Alexandre, 2012. "A directional-change event approach for studying financial time series," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 6, pages 1-17.
    • Handle: RePEc:zbw:ifweej:201236
    DOI: 10.5018/economics-ejournal.ja.2012-36
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    References listed on IDEAS

    as
    1. T. Bisig & A. Dupuis & V. Impagliazzo & R. B. Olsen, 2012. "The scale of market quakes," Quantitative Finance, Taylor & Francis Journals, vol. 12(4), pages 501-508, July.
    2. Allais, Maurice, 1974. "The Psychological Rate of Interest," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 6(3), pages 285-331, August.
    3. J. B. Glattfelder & A. Dupuis & R. B. Olsen, 2010. "Patterns in high-frequency FX data: discovery of 12 empirical scaling laws," Quantitative Finance, Taylor & Francis Journals, vol. 11(4), pages 599-614.
    4. Abdalla Kablan & Wing Lon Ng, 2011. "Intraday high-frequency FX trading with adaptive neuro-fuzzy inference systems," International Journal of Financial Markets and Derivatives, Inderscience Enterprises Ltd, vol. 2(1/2), pages 68-87.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Leal, Sandrine Jacob & Napoletano, Mauro, 2019. "Market stability vs. market resilience: Regulatory policies experiments in an agent-based model with low- and high-frequency trading," Journal of Economic Behavior & Organization, Elsevier, vol. 157(C), pages 15-41.
    2. repec:spo:wpmain:info:hdl:2441/3utlh0ehcn860pus6p2p683ade is not listed on IDEAS
    3. James B. Glattfelder & Richard B. Olsen, 2024. "The Theory of Intrinsic Time: A Primer," Papers 2406.07354, arXiv.org.
    4. Edward P. K. Tsang & Ran Tao & Antoaneta Serguieva & Shuai Ma, 2017. "Profiling high-frequency equity price movements in directional changes," Quantitative Finance, Taylor & Francis Journals, vol. 17(2), pages 217-225, February.
    5. Sandrine Jacob Leal & Mauro Napoletano, 2017. "Market Stability vs. Market Resilience: Regulatory Policies Experiments in an Agent-Based Model with Low- and High-Frequency Trading," Post-Print hal-01768876, HAL.
    6. repec:hal:spmain:info:hdl:2441/3utlh0ehcn860pus6p2p683ade is not listed on IDEAS
    7. Hu, Shicheng & Zhang, Weijie & Li, Danping & Wu, Bing, 2023. "Incorporating improved directional change and regime change detection to formulate trading strategies in foreign exchange markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 622(C).

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    More about this item

    Keywords

    directional-change event; intrinsic time; high-frequency finance; foreign exchange market; time-series analysis;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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