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Super-Whiteness of Returns Spectra
Volume 7, Issue 4 (2009), pp. 423–431
Erhard Reschenhofer  

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https://doi.org/10.6339/JDS.2009.07(4).499
Pub. online: 4 August 2022      Type: Research Article      Open accessOpen Access

Published
4 August 2022

Abstract

Abstract: Until the late 70’s the spectral densities of stock returns and stock index returns exhibited a type of non-constancy that could be detected by standard tests for white noise. Since then these tests have been unable to find any substantial deviations from whiteness. But that does not mean that today’s returns spectra contain no useful information. Using several sophisticated frequency domain tests to look for specific patterns in the periodograms of returns series we find nothing or, more precisely, less than nothing. Actually, there is a striking power deficiency, which implies that these series exhibit even fewer patterns than white noise. To unveil the source of this “super-whiteness” we design a simple frequency domain test for characterless, fuzzy alternatives, which are not immediately usable for the construction of profitable trading strategies, and apply it to the same data. Because the power deficiency is now much smaller, we conclude that our puzzling findings may be due to trading activities based on excessive data snooping.

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Journal of data science

  • Online ISSN: 1683-8602
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