Stationarity of the detrended price return in stock markets

Karina Arias-Calluari, Morteza. N. Najafi, Michael S. Harr\'e and Fernando Alonso-Marroquin

Papers from arXiv.org

Abstract: This paper proposes a governing equation for stock market indexes that accounts for non-stationary effects. This is a linear Fokker-Planck equation (FPE) that describes the time evolution of the probability distribution function (PDF) of the price return. By applying Ito's lemma, this FPE is associated with a stochastic differential equation (SDE) that models the time evolution of the price return in a fashion different from the classical Black-Scholes equation. Both FPE and SDE equations account for a deterministic part or trend, and a stationary, stochastic part as a q-Gaussian noise. The model is validated using the S\&P500 index's data. After removing the trend from the index, we show that the detrended part is stationary by evaluating the Hurst exponent of the multifractal time series, its power spectrum, and its autocorrelation.

Date: 2019-10, Revised 2020-08
New Economics Papers: this item is included in nep-ets and nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/1910.01034 Latest version (application/pdf)

Related works:
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:1910.01034

Access Statistics for this paper

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