Is market index autocorrelation attributable to price latency? Evidence from CSI500

ABSTRACT

This article discusses the autocorrelation in daily returns of the China Stock Index 500 (CSI500) from the perspective of price latency due to price limit mechanism. We propose limit-up/limit-down (LULD) indices to quantify the price latency in CSI500 as an aggregated number of component stocks closing with LULD in a given trading day. We found that the positive autocorrelation in the CSI500 market index during the data period disappeared after the price latency was controlled. This implies that the autocorrelation we observed may be attributable to the price latency measured by LULD indices. Our findings provide new insight into the dynamic features of market indices and may serve as a workable reference for practical usage of the market index.

KEYWORDS:

• Autocorrelation
• price limit
• CSI500
• dynamic feature

JEL CLASSIFICATION:

• G14
• G15

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

This work was supported by the National Natural Science Foundation of China [71503060,71532004].