MULTIFRACTIONAL PROPERTIES OF STOCK INDICES DECOMPOSED BY FILTERING THEIR POINTWISE HÖLDER REGULARITY

Bianchi, Sergio; Pianese, A.

MULTIFRACTIONAL PROPERTIES OF STOCK INDICES DECOMPOSED BY FILTERING THEIR POINTWISE HÖLDER REGULARITY

Sergio Bianchi and A. Pianese ()
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A. Pianese: Faculty of Economics, University of Cassino, Italy

International Journal of Theoretical and Applied Finance (IJTAF), 2008, vol. 11, issue 06, 567-595

Abstract: We propose a decomposition of financial time series into Gaussian subsequences characterized by a constant Hölder exponent. In (multi)fractal models this condition is equivalent to the subsequences themselves being stationarity. For the different subsequences, we study the scaling of the variance and the bias that is generated when the Hölder exponent is re-estimated using traditional estimators. The results achieved by both analyses are shown to be strongly consistent with the assumption that the price process can be modeled by the multifractional Brownian motion, a nonstationary process whose Hölder regularity changes from point to point.

Keywords: Multifractional Brownian motion; pointwise Hölder exponent estimation; stock price process (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (3)

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DOI: 10.1142/S0219024908004932

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