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Title:The microstructure of cross-autocorrelations PDF Logo
Authors:Chordia, Tarun
Sarkar, Asani
Subrahmanyam, Avanidhar
Issue Date:2007
Series/Report no.:Staff Report, Federal Reserve Bank of New York 303
Abstract:This paper examines the mechanism through which the incorporation of information into prices leads to cross-autocorrelations in stock returns. The lead-lag relation between large and small stocks increases with lagged spreads of large stocks. Further, order flows in large stocks significantly predict the returns of small stocks when large stock spreads are high. This effect is consistent with the notion that trading on common information takes place first in the large stocks and is then transmitted to smaller stocks with a lag, suggesting that price discovery takes place in the large stocks.
Subjects:lead-lag, returns, small stocks, large stocks, microstructure, information
JEL:G10
G14
Document Type:Working Paper
Appears in Collections:Staff Reports, Federal Reserve Bank of New York

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