Pointwise Regularity Exponents and Well-Behaved Residuals in Stock Markets

International Journal of Trade, Economics and Finance, Vol. 2, No. 1, pp. 52-60

NYU Tandon Research Paper No. 1886390

9 Pages Posted: 15 Jul 2011

Date Written: July, 15 2011

Abstract

The article deals with a class of stochastic processes, the Multifractional Processes with Random Exponent (MPRE), recently introduced to gain flexibility in modeling many complex phenomena. We claim that MPRE can capture in a very parsimonious way most of the well known financial stylized facts. In particular, we prove that the process unconditional distributions are fat-tailed and high-peaked and show that, as it occurs for asset returns, the empirical autocorrelation functions of the process increments are close to zero whereas significant values are exhibited by squared (or absolute) increments. Furthermore, we provide evidence that the sole knowledge of functional parameter of the MPRE allows to calculate residuals that perform much better than those obtained by other discrete models such as the GARCH family.

Keywords: Declustering, GARCH, Multifractional Processes with Random Exponents, Residuals

JEL Classification: C22, G12, G14, G17

Suggested Citation

Bianchi, Sergio and Pantanella, Alexandre, Pointwise Regularity Exponents and Well-Behaved Residuals in Stock Markets (July, 15 2011). International Journal of Trade, Economics and Finance, Vol. 2, No. 1, pp. 52-60, NYU Tandon Research Paper No. 1886390, Available at SSRN: https://ssrn.com/abstract=1886390

Sergio Bianchi (Contact Author)

University of Cassino ( email )

Via S. Angelo - Campus Folcara
Dept. of Economics and Law
Cassino, 03043
Italy
+3907762994846 (Phone)
+390776393034 (Fax)

HOME PAGE: http://www.docente.unicas.it/sergio_bianchi

Alexandre Pantanella

University of Cassino ( email )

Via S. Angelo, Loc. Folcara
Cassino, Frosinone 03043
Italy

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
63
Abstract Views
594
Rank
645,617
PlumX Metrics