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Nonlinear bivariate dependency of price–volume relationships in agricultural commodity futures markets: A perspective from Multifractal Detrended Cross-Correlation Analysis

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  • He, Ling-Yun
  • Chen, Shu-Peng

Abstract

Nonlinear dependency between characteristic financial and commodity market quantities (variables) is crucially important, especially between trading volume and market price. Studies on nonlinear dependency between price and volume can provide practical insights into market trading characteristics, as well as the theoretical understanding of market dynamics. Actually, nonlinear dependency and its underlying dynamical mechanisms between price and volume can help researchers and technical analysts in understanding the market dynamics by integrating the market variables, instead of investigating them in the current literature. Therefore, for investigating nonlinear dependency of price–volume relationships in agricultural commodity futures markets in China and the US, we perform a new statistical test to detect cross-correlations and apply a new methodology called Multifractal Detrended Cross-Correlation Analysis (MF-DCCA), which is an efficient algorithm to analyze two spatially or temporally correlated time series. We discuss theoretically the relationship between the bivariate cross-correlation exponent and the generalized Hurst exponents for time series of respective variables. We also perform an empirical study and find that there exists a power-law cross-correlation between them, and that multifractal features are significant in all the analyzed agricultural commodity futures markets.

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Bibliographic Info

Article provided by Elsevier in its journal Physica A: Statistical Mechanics and its Applications.

Volume (Year): 390 (2011)
Issue (Month): 2 ()
Pages: 297-308

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Handle: RePEc:eee:phsmap:v:390:y:2011:i:2:p:297-308

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Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/

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Keywords: Agricultural commodity futures market; Nonlinear bivariate dependency; Multifractal Detrended Cross-Correlation Analysis; Multifractality;

References

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  1. B. Podobnik & I. Grosse & D. Horvatić & S. Ilic & P. Ch. Ivanov & H. E. Stanley, 2009. "Quantifying cross-correlations using local and global detrending approaches," The European Physical Journal B - Condensed Matter and Complex Systems, Springer, vol. 71(2), pages 243-250, September.
  2. B. Podobnik & D. F. Fu & H. E. Stanley & P. Ch. Ivanov, 2007. "Power-law autocorrelated stochastic processes with long-range cross-correlations," The European Physical Journal B - Condensed Matter and Complex Systems, Springer, vol. 56(1), pages 47-52, 03.
  3. S. Shadkhoo & G. R. Jafari, 2009. "Multifractal detrended cross-correlation analysis of temporal and spatial seismic data," The European Physical Journal B - Condensed Matter and Complex Systems, Springer, vol. 72(4), pages 679-683, December.
  4. Mizuno, Takayuki & Takayasu, Hideki & Takayasu, Misako, 2006. "Correlation networks among currencies," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 364(C), pages 336-342.
  5. Tauchen, George E & Pitts, Mark, 1983. "The Price Variability-Volume Relationship on Speculative Markets," Econometrica, Econometric Society, vol. 51(2), pages 485-505, March.
  6. L. Kullmann & J. Kertesz & K. Kaski, 2002. "Time dependent cross correlations between different stock returns: A directed network of influence," Papers cond-mat/0203256, arXiv.org, revised May 2002.
  7. Chen, Shu-Peng & He, Ling-Yun, 2010. "Multifractal spectrum analysis of nonlinear dynamical mechanisms in China’s agricultural futures markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(7), pages 1434-1444.
  8. Wei-Xing Zhou, 2008. "Multifractal detrended cross-correlation analysis for two nonstationary signals," Papers 0803.2773, arXiv.org.
  9. Vasiliki Plerou & Parameswaran Gopikrishnan & Bernd Rosenow & Luis A. Nunes Amaral & H. Eugene Stanley, 1999. "Universal and non-universal properties of cross-correlations in financial time series," Papers cond-mat/9902283, arXiv.org.
  10. He, Ling-Yun & Chen, Shu-Peng, 2010. "Are developed and emerging agricultural futures markets multifractal? A comparative perspective," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(18), pages 3828-3836.
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