Scale-adjusted volatility and the Dow Jones index

Craig Ellis and Christopher Hudson

Physica A: Statistical Mechanics and its Applications, 2007, vol. 378, issue 2, 374-386

Abstract: This paper extends research by Batten and Ellis [Econ. Lett. 72 (2001) 291] to propose a simple model of scale-adjusted volatility which measures the extent to which the Gaussian scaling law mis-estimates long-horizon volatility. Applied to the Dow Jones industrial average, the results of our model show a dramatic improvement over the Gaussian scaling law in predicting long-horizon volatility. Our model provides a general framework for estimating scaled volatility that may be also applied to other fields of study where the Hurst exponent is commonly used.

Keywords: Scaling laws; Volatility; Hurst exponent (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:378:y:2007:i:2:p:374-386

DOI: 10.1016/j.physa.2006.12.008

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