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Special Quotes Invoke Autocorrelation in Japanese Stock Prices

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It is reported in the present paper that 1-min returns on TOPIX have exhibited significant autocorrelation at 5-min intervals since 1997/1998. Special quotes that are issued whenever there is a price jump in excess of a predetermined band seem to be the source of this autocorrelation, because these have been automatically updated at 5-min intervals since August 1998 and have appeared during the first 30 min from opening. Individual stock returns also exhibit fifth-order autocorrelation, but this disappears when the data with special quotes are excluded from the sample. Therefore, the autocorrelation is caused by the special quotes: a type of market microstructure noise.
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Keywords: G14; Japan; autocorrelation; efficient market hypothesis; stock prices

Document Type: Research Article

Affiliations: 1: Institute of Social and Economic Research, Osaka University, 6-1 Mihogaoka, Ibaraki, 567-0047 Japan 2: Kwansei Gakuin University Uegahara, Nishinomiya-shi, Hyogo 662-8501, Japan 3: Nomura Research Institute, 1-6-5 Marunouchi, Chiyoda-ku, Tokyo 100-0005, Japan

Publication date: December 1, 2007

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