2,905 research outputs found
The effect of round-off error on long memory processes
We study how the round-off (or discretization) error changes the statistical
properties of a Gaussian long memory process. We show that the autocovariance
and the spectral density of the discretized process are asymptotically rescaled
by a factor smaller than one, and we compute exactly this scaling factor.
Consequently, we find that the discretized process is also long memory with the
same Hurst exponent as the original process. We consider the properties of two
estimators of the Hurst exponent, namely the local Whittle (LW) estimator and
the Detrended Fluctuation Analysis (DFA). By using analytical considerations
and numerical simulations we show that, in presence of round-off error, both
estimators are severely negatively biased in finite samples. Under regularity
conditions we prove that the LW estimator applied to discretized processes is
consistent and asymptotically normal. Moreover, we compute the asymptotic
properties of the DFA for a generic (i.e. non Gaussian) long memory process and
we apply the result to discretized processes.Comment: 44 pages, 4 figures, 4 table
How are rescaled range analyses affected by different memory and distributional properties? A Monte Carlo study
In this paper, we present the results of Monte Carlo simulations for two
popular techniques of long-range correlations detection - classical and
modified rescaled range analyses. A focus is put on an effect of different
distributional properties on an ability of the methods to efficiently
distinguish between short and long-term memory. To do so, we analyze the
behavior of the estimators for independent, short-range dependent, and
long-range dependent processes with innovations from 8 different distributions.
We find that apart from a combination of very high levels of kurtosis and
skewness, both estimators are quite robust to distributional properties.
Importantly, we show that R/S is biased upwards (yet not strongly) for
short-range dependent processes, while M-R/S is strongly biased downwards for
long-range dependent processes regardless of the distribution of innovations.Comment: 15 pages, 6 table
Behavior of realized volatility and correlation in exchange markets
We study time-varying realized volatility and related correlation measures as proxies for the true volatility and correlation. We investigate measures of Two-Scale realized Absolute Volatility (TSAV) and correlation (TSACORxy) which are helpful to cope effectively with the problem of market microstructure effects at very high frequency financial time series. The measures are constructed based on subsampling and averaging method so that they possess rather less bias even in presence of market microstructure noise. Absolute transformation of return values has been proved in literature to be more robust than squared transformation when considering large values. With respect to some stylized facts of markets, realized squared correlation does not display dynamic behavior. Motivated by robustness of realized absolute volatility, we study an alternative measure of correlation, built on absolute-transformed volatility. This measure of correlation exhibits experimentally some dynamics and hence some predictability capability on minute-by-minute frequency exchange market data. We show that the distribution of realized correlation series computed based on TSACORxy tends to comply a rightward asymmetric shape implying that upside co-movements are greater than downside ones. Moreover we study the association between realized volatility and correlation. According to the two-scale measure, our findings empirically suggest that when returns in Euro/USD exchange rate are highly volatile, the relation between Euro/USD and Euro/GBP exchange markets is strong, and when Euro/USD calms down, the relationship relaxes.Realized Volatility and Correlation, Long Memory, Scaling Law, Self-Similarity Dimension, Market Microstructure Effects.
Leverage effect in energy futures
We propose a comprehensive treatment of the leverage effect, i.e. the
relationship between returns and volatility of a specific asset, focusing on
energy commodities futures, namely Brent and WTI crude oils, natural gas and
heating oil. After estimating the volatility process without assuming any
specific form of its behavior, we find the volatility to be long-term dependent
with the Hurst exponent on a verge of stationarity and non-stationarity.
Bypassing this using by using the detrended cross-correlation and the
detrending moving-average cross-correlation coefficients, we find the standard
leverage effect for both crude oil. For heating oil, the effect is not
statistically significant, and for natural gas, we find the inverse leverage
effect. Finally, we also show that none of the effects between returns and
volatility is detected as the long-term cross-correlated one. These findings
can be further utilized to enhance forecasting models and mainly in the risk
management and portfolio diversification.Comment: 19 pages, 2 figures, 5 table
Multi-scale correlations in different futures markets
In the present work we investigate the multiscale nature of the correlations
for high frequency data (1 minute) in different futures markets over a period
of two years, starting on the 1st of January 2003 and ending on the 31st of
December 2004. In particular, by using the concept of "local" Hurst exponent,
we point out how the behaviour of this parameter, usually considered as a
benchmark for persistency/antipersistency recognition in time series, is
largely time-scale dependent in the market context. These findings are a direct
consequence of the intrinsic complexity of a system where trading strategies
are scale-adaptive. Moreover, our analysis points out different regimes in the
dynamical behaviour of the market indices under consideration.Comment: 14 pages and 25 figure
Application of Multifractal Measures to Tehran Price Index
We report an empirical study of Tehran Price Index (TEPIX). To analyze our
data we use various methods like as, rescaled range analysis (), modified
rescaled range analysis (Lo's method), Detrended Fluctuation Analysis (DFA) and
generalized Hurst exponents analysis. Based on numerical results, the scaling
range of TEPIX returns is specified, long memory effect or long range
correlation property in this market is investigated, characteristic exponent
for probability distribution function of TEPIX returns is derived and finally
the stage of development in Tehran Stock Exchange is determined.Comment: 19 pages, 6 figure
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