Intermarket analysis

Lead-Lag Relationship using a Stop-and-Reverse-MinMax Process

The inter­mar­ket ana­ly­sis, in par­ti­cu­lar the lead-lag rela­ti­onship, plays an important role within finan­cial mar­kets. The­r­e­fo­re a mathe­ma­ti­cal approach to be able to find inter­re­la­ti­ons bet­ween the pri­ce deve­lo­p­ment of two dif­fe­rent finan­cial under­lyings is deve­lo­ped in this paper. Com­pu­ting the dif­fe­ren­ces of the rela­ti­ve posi­ti­ons of rele­vant local extre­ma of two charts, i.e., the local pha­se shifts of the­se under­lyings, gives us an empi­ri­cal dis­tri­bu­ti­on on the unit cir­cle. With the aid of direc­tion­al sta­tis­tics such angu­lar dis­tri­bu­ti­ons are stu­di­ed for many pairs of mar­kets. It is shown that the­re are seve­ral very stron­gly cor­re­la­ted under­lyings in the field of for­eign exch­an­ge, com­mo­di­ties and inde­xes. In some cases one of the two under­lyings is signi­fi­cant­ly ahead with respect to the rele­vant local extre­ma, i.e., the­re is a pha­se shift une­qual to zero bet­ween the­se two underlyings.