[R-SIG-Finance] How to find lead-lag relation in two time series?

[Patrick Burns]

You want to use returns, not prices.
Correlations with prices are spurious.
(The extreme example is to think of
a long set of series with inflation --
all the price series will be positively
correlated.)


On 19/02/2010 23:15, Michael Jungle wrote:
>
> One possibility is to do the cross-correlation.
>
> What series shall I apply cross-correlation to? Price or return series?
>
> If I do cross-correlation on two price series, and found some large
> correlation numbers,
>
> and then do cross-correlation on two return series, and found no significant
> numbers(almost zero),
>
> What does that mean?

-- 
Patrick Burns
patrick at burns-stat.com
http://www.burns-stat.com