EconPapers    
Economics at your fingertips  
 

Understanding the source of multifractality in financial markets

Jozef Baruník (), Tomaso Aste, Tiziana Di Matteo and Ruipeng Liu

Papers from arXiv.org

Abstract: In this paper, we use the generalized Hurst exponent approach to study the multi- scaling behavior of different financial time series. We show that this approach is robust and powerful in detecting different types of multiscaling. We observe a puzzling phenomenon where an apparent increase in multifractality is measured in time series generated from shuffled returns, where all time-correlations are destroyed, while the return distributions are conserved. This effect is robust and it is reproduced in several real financial data including stock market indices, exchange rates and interest rates. In order to understand the origin of this effect we investigate different simulated time series by means of the Markov switching multifractal (MSM) model, autoregressive fractionally integrated moving average (ARFIMA) processes with stable innovations, fractional Brownian motion and Levy flights. Overall we conclude that the multifractality observed in financial time series is mainly a consequence of the characteristic fat-tailed distribution of the returns and time-correlations have the effect to decrease the measured multifractality.

Date: 2012-01, Revised 2012-01
New Economics Papers: this item is included in nep-ets
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (42) Track citations by RSS feed

Published in Physica A, 391 (17), pp. 4234-4251 (2012)

Downloads: (external link)
http://arxiv.org/pdf/1201.1535 Latest version (application/pdf)

Related works:
Journal Article: Understanding the source of multifractality in financial markets (2012) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1201.1535

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().

 
Page updated 2020-07-22
Handle: RePEc:arx:papers:1201.1535