Allan deviation analysis of financial return series

R. Hernández-Pérez

Physica A: Statistical Mechanics and its Applications, 2012, vol. 391, issue 9, 2883-2888

Abstract: We perform a scaling analysis for the return series of different financial assets applying the Allan deviation (ADEV), which is used in the time and frequency metrology to characterize quantitatively the stability of frequency standards since it has demonstrated to be a robust quantity to analyze fluctuations of non-stationary time series for different observation intervals. The data used are opening price daily series for assets from different markets during a time span of around ten years. We found that the ADEV results for the return series at short scales resemble those expected for an uncorrelated series, consistent with the efficient market hypothesis. On the other hand, the ADEV results for absolute return series for short scales (first one or two decades) decrease following approximately a scaling relation up to a point that is different for almost each asset, after which the ADEV deviates from scaling, which suggests that the presence of clustering, long-range dependence and non-stationarity signatures in the series drive the results for large observation intervals.

Keywords: Econophysics; Scaling in financial time series; Allan deviation (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:391:y:2012:i:9:p:2883-2888

DOI: 10.1016/j.physa.2012.01.005

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