Multifractal Cross-Correlations Risk Among WTI and Financial Assets

Abstract

Independent of research science area, scientists have a consensus that people’s lives are highly susceptible to risk. Thus, one of the most relevant challenges for scientists is associated with effectively quantifying the risk. In this paper, we assess the Multifractal Cross-Correlation Measure (MRCC) among West Texas Intermediate (WTI) , 7 Fiat currencies and 3 Foreign exchange rates. Therefore, we use the Multifractal Detrended Cross-Correlation Analysis (MF-DCCA) to examine the volatility dynamics considering the pairs of these financial records. We discover that all these volatility time series pairs (𝛼𝑥𝑦(&.-|gt; 0.5) are characterized by overall persistent behaviour. Based on the values of (𝛼𝑥𝑦(0), we find that the pairs of these financial records discard the Efficient Market Hypothesis (EMH) in the Fama’s sense. The MRCC values exhibit that the pairs WTI vs MXN (Γ = 0.821425), WTI vs JPY (Γ = 0.796747) and WTI vs NOK (Γ = 0.756545) are more complex and persistent than the other pairs. Otherwise, the pairs WTI vs AUD (Γ = 0.580362), WTI vs CAD (Γ = 0.667706) and WTI vs EMK (Γ = 0.705446) are less complex and persistent. Thus, our empirical findings shed light on the thorny problem of quantification risk based on a multifractal perspective.

Keywords: Fiat currencies, Foreign exchange rates; Energy commodity; Multifractality; Cross-correlation; Risk.