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

Heather Mitchell*, Michael D. McKenzie

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

3 Citations (Scopus)

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.

Original languageEnglish
Pages (from-to)3519-3524
Number of pages6
JournalJournal of Banking and Finance
Volume30
Issue number12
DOIs
Publication statusPublished - Dec 2006

Keywords

  • Chaos
  • Compass rose
  • Tick/volatility ratio

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