Noble International Journal of Economics and Financial Research

Online ISSN: 2519-9730 | Print ISSN: 2523-0565

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Volume 2 Number 9 September 2017

Using Ratios of Successive Returns for the Estimation of Serial Correlation in Return Series

Pages: 125-130
Authors: Erhard Reschenhofer
Abstract

This paper proposes to estimate the first-order autocorrelation of asset returns by the rescaled sample mean of suitably transformed ratios of successive returns. The simplicity of this estimation method allows the monitoring of the stability of the estimates over time and the almost instantaneous detection of any structural break without any delay caused by an estimation window. In an empirical study of index returns, its use considerably increases the profitability of a simple trading strategy which switches between the index and cash.

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