A note on the Wang and Wang measure of the quality of the compass rose

Mitchell, H and McKenzie, M 2006, 'A note on the Wang and Wang measure of the quality of the compass rose', Journal of Banking and Finance, vol. 30, no. 12, pp. 3519-3524.


Document type: Journal Article
Collection: Journal Articles

Title A note on the Wang and Wang measure of the quality of the compass rose
Author(s) Mitchell, H
McKenzie, M
Year 2006
Journal name Journal of Banking and Finance
Volume number 30
Issue number 12
Start page 3519
End page 3524
Total pages 5
Publisher Elsevier
Abstract H. Wang and C. Wang [Visibility of the compass rose in financial asset returns: A quantitative study, J. Bank. Financ. 26 (2002), 1099-1111] derive a measure of the visibility of the radial patterns that appear in a plot of current and past returns, which are more commonly known as the compass rose. In theory, this measure should be positively related to the tick/volatility ratio. In practice however, we find that this relationship does not hold for higher tick/volatility ratios that are common to stock market data. Thus, the use of this measure is limited in real world applications. We propose a correction factor that improves the behaviour of the quality measure over higher tick/volatility ratios, however, further research is required to fully identify and correct the problem.
Subject Econometrics not elsewhere classified
Keyword(s) compass rose
chaos
tick/volatility ratio
C12
DOI - identifier 10.1016/j.jbankfin.2006.05.016
Copyright notice Copyright © 2006 Elsevier B.V. All rights reserved.
ISSN 0378-4266
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