The Compass Rose Pattern of the Stock Market: How Does it Affect Parameter Estimates, Forecasts, and Statistical Tests?
A "compass rose" pattern sometimes appears when stock returns are plotted against themselves with a one-day lag, since stock prices move in discrete steps. In this paper, we perform a Monte Carlo study on simulated stock price series rounded in different ways to mirror the behavior of stocks on the Stockholm Stock Exchange. We find AR-GARCH parameter estimates to be affected by the discreteness im