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On the Autocorrelation of the Stock Market
[X-CAPM: An Extrapolative Capital Asset Pricing Model]

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  • Ian Martin
Abstract
I introduce an index of market return autocorrelation based on the prices of index options and of forward-start index options and implement it at a six-month horizon. The results suggest that the autocorrelation of the S&P 500 index was close to zero before the subprime crisis but was negative in its aftermath, attaining values around –20% to –30%. I speculate that this may reflect market perceptions about the likely reaction, via quantitative easing, of policymakers to future market moves.

Suggested Citation

  • Ian Martin, 2021. "On the Autocorrelation of the Stock Market [X-CAPM: An Extrapolative Capital Asset Pricing Model]," Journal of Financial Econometrics, Oxford University Press, vol. 19(1), pages 39-52.
    • Handle: RePEc:oup:jfinec:v:19:y:2021:i:1:p:39-52.
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    File URL: http://hdl.handle.net/10.1093/jjfinec/nbaa033
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    Cited by:

    1. Weiguang Han & Boyi Zhang & Qianqian Xie & Min Peng & Yanzhao Lai & Jimin Huang, 2023. "Select and Trade: Towards Unified Pair Trading with Hierarchical Reinforcement Learning," Papers 2301.10724, arXiv.org, revised Feb 2023.
    2. María T. González-Pérez, 2021. "Lessons from estimating the average option-implied volatility term structure for the Spanish banking sector," Working Papers 2128, Banco de España.

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    JEL classification:

    • F3 - International Economics - - International Finance
    • G3 - Financial Economics - - Corporate Finance and Governance

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