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Comparative analysis of grey detrended fluctuation analysis methods based on empirical research on China’s interest rate market

Cao Guangxi, Min Jiang and Ling-Yun He

Physica A: Statistical Mechanics and its Applications, 2018, vol. 506, issue C, 156-169

Abstract: This study empirically compares the development of China’s interest rate market in the past decade. The yield of Shibor market from 2006 to 2016 showed anti-persistence, and the later five-year trend was stronger than that in the previous half period, indicating a significantly growing trend of China’s interest rate market. We perform a comparative analysis of detrended fluctuation analysis (DFA), detrending moving average (DMA) algorithm, and the maximum overlap wavelet transform (DFA-MODWT) using grey and original sequences. The autoregressive integrated moving average model is adopted to generate set-point H sequences. Results illustrated that 1) for original sequences, both the DFA-MODWT and DMA (θ=0.5) shows outstanding performances when the set Hurst exponents are 0.6 and 0.7 and 0.8 and 0.9, respectively. 2) For grey sequences, G-DFA performs best among the three methods, followed by G-DMA and G-DFA-MODWT. 3) The long-range correlation of the original sequences is slightly lower than the set values. On the contrary, the long-range correlation of grey sequences is much higher than the set values. Thus, the grey sequence exerts a strong aggregation effect as it can accumulate the trend of the sequence. Our results show that the grey sequence can determine the regular pattern from the messy sequence. However, grey sequences tend to be overly analyzed and misleading when large volumes of data are involved. Empirical studies confirm that China’s interest rate market remains an inefficient market.

Keywords: Shibor; Interest rate market; Grey system theory; Detrended fluctuation analysis; Long-range correlation (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1016/j.physa.2018.04.052

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