Lead-lag effect

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A lead-lag effect, especially in economics, describes the situation where one (leading) variable is correlated with the values of another (lagging) variable at later times.

For example, economists have found that in some circumstances there is a lead-lag effect between large-capitalization and small-capitalization stock-portfolio prices (Lo and MacKinlay, 1990).

(A loosely related concept is that of lead-lag compensators in control theory, but this is not generally referred to specifically as a "lead-lag effect.")

References

  • Andrew W. Lo and A. Craig MacKinlay, "When are contrarian profits due to stock market overreaction," Review of Financial Studies 3 (2), 175-205 (1990).
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