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Intraday Empirical Analysis and Modeling of Diversified World Stock Indices

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Author Info
Wolfgang Breymann
Leah Kelly
Eckhard Platen () (School of Finance and Economics, University of Technology, Sydney)

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Abstract

This paper proposes an approach to the intraday analysis of diversified world stock accumulation indices. The growth optimal portfolio (GOP) is used as reference unit or benchmark in a continuous financial market model. Diversified portfolios, covering the world stock market, are constructed and shown to approximate the GOP, providing the basis for a range of financial applications. The normalized GOP is modeled as a time transformed square root process of dimension four. Its dynamics are empirically verified for several world stock indices. Furthermore, the evolution of the transformed time is modeled as the integral over a rapidly evolving mean-reverting market activity process with deterministic volatility. The empirical findings suggest a rather simple and robust model for a world stock index that reflects the historical evolution, by using only a few readily observable parameters.

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File URL: http://www.business.uts.edu.au/qfrc/research/research_papers/rp125.pdf
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Publisher Info
Paper provided by Quantitative Finance Research Centre, University of Technology, Sydney in its series Research Paper Series with number 125.

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Length: 23
Date of creation: 01 May 2004
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Handle: RePEc:uts:rpaper:125

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Related research
Keywords: world stock index; intraday analysis; growth optimal portfolio; diversified portfolio; market activity; deseasonalization; square root process;

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Find related papers by JEL classification:
G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1985. "A Theory of the Term Structure of Interest Rates," Econometrica, Econometric Society, vol. 53(2), pages 385-407, March. [Downloadable!] (restricted)
  2. Leah Kelly & Eckhard Platen, 2003. "Estimating for Discretely Observed Diffusions Using Transform Functions," Research Paper Series 96, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
  3. Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 5-59. [Downloadable!] (restricted)
  4. Olivier V. Pictet & Michel M. Dacorogna & Ulrich A. Muller, 1996. "Hill, Bootstrap and Jackknife Estimators for Heavy Tails," Working Papers 1996-12-10, Olsen and Associates. [Downloadable!]
  5. Goodhart, Charles A. E. & O'Hara, Maureen, 1997. "High frequency data in financial markets: Issues and applications," Journal of Empirical Finance, Elsevier, vol. 4(2-3), pages 73-114, June. [Downloadable!] (restricted)
  6. Long, John Jr., 1990. "The numeraire portfolio," Journal of Financial Economics, Elsevier, vol. 26(1), pages 29-69, July. [Downloadable!] (restricted)
  7. Eckhard Platen, 2003. "Modeling the Volatility and Expected Value of a Diversified World Index," Research Paper Series 103, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
  8. Eckhard Platen, 2004. "A Benchmark Approach to Finance," Research Paper Series 138, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
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  9. Eckhard Platen, 2001. "Arbitrage in Continuous Complete Markets," Research Paper Series 72, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. David Heath & Eckhard Platen, 2004. "Understanding the Implied Volatility Surface for Options on a Diversified Index," Asia-Pacific Financial Markets, Springer, vol. 11(1), pages 55-77, March. [Downloadable!] (restricted)
    Other versions:
  2. Eckhard Platen, 2004. "Diversified Portfolios with Jumps in a Benchmark Framework," Asia-Pacific Financial Markets, Springer, vol. 11(1), pages 1-22, March. [Downloadable!] (restricted)
    Other versions:
  3. Eckhard Platen & Jason West & Wolfgang Breymann, 2004. "An Intraday Empirical Analysis of Electricity Price Behaviour," Research Paper Series 140, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
  4. Eckhard Platen, 2003. "A Benchmark Framework for Risk Management," Research Paper Series 113, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
  5. Eckhard Platen & Wolfgang Runggaldier, 2004. "A Benchmark Approach to Filtering in Finance," Asia-Pacific Financial Markets, Springer, vol. 11(1), pages 79-105, March. [Downloadable!] (restricted)
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