Multifractality of the Istanbul and Moscow Stock Market Returns
46 Pages Posted: 12 Jun 2008
Date Written: April 1, 2003
Abstract
There is a growing awareness among financial researchers that the traditional models of asset returns cannot capture essential time series properties of the current stock return data. We examine commonly used models, such as the autoregressive integrated moving average (ARIMA) and the autoregressive conditional heteroskedasticity (ARCH) family, and show that these models cannot account for the essential characteristics of the real Istanbul Stock Exchange and Moscow Stock Exchange returns. These models often fail, and when they succeed, they do at the cost of an increasing number of parameters and structural equations. The measures of risk obtained from these models do not reflect the true risk to traders, since they cannot capture all key features of the data. In this paper, we offer an alternative framework of analysis based on multifractal models. Compared to the traditional models, the multifractal models we use are very parsimonious and replicate all key features of the data with only three universal parameters. The multifractal models have superior risk evaluation performance. They also produce better forecasts at all scales. The paper also offers a justification of the multifractal models for financial modeling.
Keywords: fractal Brownian motion, Hýlder exponent, multifractal market hypothesis, multifractal spectrum, scaling phenomena, statistical self-similarity, Wavelet transform
JEL Classification: C14, C15, C22
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
A Multifractal Model of Asset Returns
By Benoit B. Mandelbrot, Adlai J. Fisher, ...
-
Multifractality of Deutschemark / Us Dollar Exchange Rates
By Adlai J. Fisher, Laurent E. Calvet, ...
-
A Multifractal Model of Assets Returns
By Laurent E. Calvet and Adlai J. Fisher
-
Large Deviations and the Distribution of Price Changes
By Laurent E. Calvet, Adlai J. Fisher, ...
-
Financial Turbulence, Business Cycles and Intrinsic Time in an Artificial Economy
-
Multi-Fractal Processes as Models for Financial Returns: A First Assessment
By Thomas Lux
-
Modeling and Simulation of Currency Exchange Rates Using MPRE
By Sergio Bianchi, Alexandre Pantanella, ...
-
Scaling, Self-Similarity and Multifractality in FX Markets
By Zhaoxia Xu and Ramazan Gencay