Multiplicative random cascades with additional stochastic process in financial markets

Jun-ichi Maskawa (), Koji Kuroda and Joshin Murai
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Jun-ichi Maskawa: Seijo University
Koji Kuroda: Nihon University
Joshin Murai: Okayama University

Evolutionary and Institutional Economics Review, 2018, vol. 15, issue 2, No 17, 515-529

Abstract: Abstract Multiplicative random cascade model naturally reproduces the intermittency or multifractality, which is frequently shown among hierarchical complex systems such as turbulence and financial markets. As described herein, we investigate the validity of a multiplicative hierarchical random cascade model through an empirical study using financial data. Although the intermittency and multifractality of the time series are verified, random multiplicative factors linking successive hierarchical layers show a strongly negative correlation. We extend the multiplicative model to incorporate an additional stochastic term. Results show that the proposed model is consistent with all the empirical results presented here.

Keywords: Intermittency; Turbulence analogy; Mixed multiplicative-stochastic model (search for similar items in EconPapers)
JEL-codes: C22 G10 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s40844-018-0112-y

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