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Origins of the scaling behaviour in the dynamics of financial data

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  • Weron, Aleksander
  • Mercik, Szymon
  • Weron, Rafal

Abstract

The conditionally exponential decay (CED) model is used to explain the scaling laws observed in financial data. This approach enables us to identify the distributions of currency exchange rate or economic indices returns (changes) corresponding to the empirical scaling laws. This is illustrated for daily returns of the Dow Jones industrial average (DJIA) and the Standard & Poor's 500 (S&P500) indices as well as for high-frequency returns of the USD/DEM exchange rate.

Suggested Citation

  • Weron, Aleksander & Mercik, Szymon & Weron, Rafal, 1999. "Origins of the scaling behaviour in the dynamics of financial data," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 264(3), pages 562-569.
  • Handle: RePEc:eee:phsmap:v:264:y:1999:i:3:p:562-569
    DOI: 10.1016/S0378-4371(98)00551-2
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    References listed on IDEAS

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    1. Aleksander Janicki & Aleksander Weron, 1994. "Simulation and Chaotic Behavior of Alpha-stable Stochastic Processes," HSC Books, Hugo Steinhaus Center, Wroclaw University of Technology, number hsbook9401.
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    Cited by:

    1. Bucsa, G. & Jovanovic, F. & Schinckus, C., 2011. "A unified model for price return distributions used in econophysics," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(20), pages 3435-3443.
    2. Mercik, Szymon & Weron, Rafal, 2002. "Origins of scaling in FX markets," MPRA Paper 2294, University Library of Munich, Germany.
    3. Jovanovic, Franck & Schinckus, Christophe, 2017. "Econophysics and Financial Economics: An Emerging Dialogue," OUP Catalogue, Oxford University Press, number 9780190205034.
    4. Krzysztof Burnecki, 1998. "Self-similar models in risk theory," HSC Research Reports HSC/98/03, Hugo Steinhaus Center, Wroclaw University of Technology.

    More about this item

    Keywords

    Econophysics; Scaling law; CED model; High-frequency data;

    JEL classification:

    • C16 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Econometric and Statistical Methods; Specific Distributions
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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