Forecasting volatility in Shanghai and Shenzhen markets based on multifractal analysis

Hongtao Chen and Chongfeng Wu

Physica A: Statistical Mechanics and its Applications, 2011, vol. 390, issue 16, 2926-2935

Abstract: This paper analyzes the multifractality in Shanghai and Shenzhen stock markets using multifractal spectrum analysis and multifractal detrended fluctuation analysis. We find that the main source of multifractality is long-range correlations of large and small fluctuations. Then, we introduce a multifractal volatility measure (MV) and find that by taking MV as daily conditional volatility, the simulated series displayed similar “stylized facts” to the original daily return series. By capturing the dynamics of MV using the ARFIMA model, we find that the out-of-sample forecasting performance of the ARFIMA-MV model is better than some GARCH-class models and the ARFIMA-RV model under some criteria of loss function.

Keywords: Stock markets; Multifractal; Forecast; Multifractal volatility (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:390:y:2011:i:16:p:2926-2935

DOI: 10.1016/j.physa.2011.03.035

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