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Detrended Cross-Correlation Analysis Consistently Extended to Multifractality

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  • Pawe{\l} O\'swi\c{e}cimka
  • Stanis{\l}aw Dro\.zd\.z
  • Marcin Forczek
  • Stanis{\l}aw Jadach
  • Jaros{\l}aw Kwapie\'n
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    Abstract

    We propose a novel algorithm - Multifractal Cross-Correlation Analysis (MFCCA) - that constitutes a consistent extension of the Detrended Cross-Correlation Analysis (DCCA) and is able to properly identify and quantify subtle characteristics of multifractal cross-correlations between two time series. Our motivation for introducing this algorithm is that the already existing methods like MF-DXA have at best serious limitations for most of the signals describing complex natural processes and often indicate multifractal cross-correlations when there are none. The principal component of the present extension is proper incorporation of the sign of fluctuations to their generalized moments. Furthermore, we present a broad analysis of the model fractal stochastic processes as well as of the real-world signals and show that MFCCA is a robust and selective tool at the same time, and therefore allows for a reliable quantification of the cross-correlative structure of analyzed processes. In particular, it allows one to identify the boundaries of the multifractal scaling and to analyze a relation between the generalized Hurst exponent and the multifractal scaling parameter $\lambda_q$. This relation provides information about character of potential multifractality in cross-correlations and thus enables a deeper insight into dynamics of the analyzed processes than allowed by any other related method available so far. By using examples of time series from stock market, we show that financial fluctuations typically cross-correlate multifractally only for relatively large fluctuations, whereas small fluctuations remain mutually independent even at maximum of such cross-correlations. Finally, we indicate possible utility of MFCCA to study effects of the time-lagged cross-correlations.

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    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number 1308.6148.

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    Date of creation: Aug 2013
    Date of revision: Feb 2014
    Publication status: Published in Phys. Rev. E 89, 023305 (2014)
    Handle: RePEc:arx:papers:1308.6148

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    1. Linares, L. Oriana & Li, MinMin & Shrout, Patrick E., 2012. "Child training for physical aggression?," Children and Youth Services Review, Elsevier, vol. 34(12), pages 2416-2422.
    2. He, Ling-Yun & Chen, Shu-Peng, 2011. "Nonlinear bivariate dependency of price–volume relationships in agricultural commodity futures markets: A perspective from Multifractal Detrended Cross-Correlation Analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(2), pages 297-308.
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