Modified DFA and DCCA approach for quantifying the multiscale correlation structure of financial markets

Yi Yin and Pengjian Shang

Physica A: Statistical Mechanics and its Applications, 2013, vol. 392, issue 24, 6442-6457

Abstract: We use multiscale detrended fluctuation analysis (MSDFA) and multiscale detrended cross-correlation analysis (MSDCCA) to investigate auto-correlation (AC) and cross-correlation (CC) in the US and Chinese stock markets during 1997–2012. The results show that US and Chinese stock indices differ in terms of their multiscale AC structures. Stock indices in the same region also differ with regard to their multiscale AC structures. We analyze AC and CC behaviors among indices for the same region to determine similarity among six stock indices and divide them into four groups accordingly. We choose S&P500, NQCI, HSI, and the Shanghai Composite Index as representative samples for simplicity. MSDFA and MSDCCA results and average MSDFA spectra for local scaling exponents (LSEs) for individual series are presented. We find that the MSDCCA spectrum for LSE CC between two time series generally tends to be greater than the average MSDFA LSE spectrum for individual series. We obtain detailed multiscale structures and relations for CC between the four representatives. MSDFA and MSDCCA with secant rolling windows of different sizes are then applied to reanalyze the AC and CC. Vertical and horizontal comparisons of different window sizes are made. The MSDFA and MSDCCA results for the original window size are confirmed and some new interesting characteristics and conclusions regarding multiscale correlation structures are obtained.

Keywords: Multiscale detrended fluctuation analysis (MSDFA); Multiscale detrended cross-correlation analysis (MSDCCA); Multiscale auto-correlation structure; Multiscale cross-correlation structure; Stock markets; Secant rolling window (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:392:y:2013:i:24:p:6442-6457

DOI: 10.1016/j.physa.2013.07.070

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