Multi-Fractal Spectral Analysis of the 1987 Stock Market Crash

Cornelis Los and Rossitsa M. Yalamova
Additional contact information
Rossitsa M. Yalamova: University of Lethbridge

Finance from University Library of Munich, Germany

Abstract: The multifractal model of asset returns captures the volatility persistence of many financial time series. Its multifractal spectrum computed from wavelet modulus maxima lines provides the spectrum of irregularities in the distribution of market returns over time and thereby of the kind of uncertainty or randomness in a particular market. Changes in this multifractal spectrum display distinctive patterns around substantial market crashes or drawdowns. In other words, the kinds of singularities and the kinds of irregularity change in a distinct fashion in the periods immediately preceding and following major market drawdowns. This paper focuses on these identifiable multifractal spectral patterns surrounding the stock market crash of 1987. Although we are not able to find a uniquely identifiable irregularity pattern within the same market preceding different crashes at different times, we do find the same uniquely identifiable pattern in various stock markets experiencing the same crash at the same time. Moreover, our results suggest that all such crashes are preceded by a gradual increase in the weighted average of the values of the Lipschitz regularity exponents, under low dispersion of the multifractal spectrum. At a crash, this weighted average irregularity value drops to a much lower value, while the dispersion of the spectrum of Lipschitz exponents jumps up to a much higher level after the crash. Our most striking result, therefore, is that the multifractal spectra of stock market returns are not stationary. Also, while the stock market returns show a global Hurst exponent of slight persistence 0.5

Keywords: Financial Markets; Persistence; Multi-Fractal Spectral Analysis; Wavelets (search for similar items in EconPapers)
JEL-codes: C15 C23 G13 G15 (search for similar items in EconPapers)
Date: 2004-09-18
New Economics Papers: this item is included in nep-cmp and nep-fin
Note: Type of Document - pdf. Los, Cornelis A. and Yalamova, Rossitsa M., 'Multi-Fractal Spectral Analysis of the 1987 Stock Market Crash' (July 2004).
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://econwpa.ub.uni-muenchen.de/econ-wp/fin/papers/0409/0409050.pdf (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:wpa:wuwpfi:0409050

Access Statistics for this paper

More papers in Finance from University Library of Munich, Germany
Bibliographic data for series maintained by EconWPA ( this e-mail address is bad, please contact ).