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Power-law autocorrelated stochastic processes with long-range cross-correlations

Author

Listed:
  • B. Podobnik
  • D. F. Fu

    ()

  • H. E. Stanley
  • P. Ch. Ivanov

    ()

Abstract

We develop a stochastic process with two coupled variables where the absolute values of each variable exhibit long-range power-law autocorrelations and are also long-range cross-correlated. We investigate how the scaling exponents characterizing power-law autocorrelation and long-range cross-correlation behavior in the absolute values of the generated variables depend on the two parameters in our model. In particular, if the autocorrelation is stronger, the cross-correlation is also stronger. We test the utility of our approach by comparing the autocorrelation and cross-correlation properties of the time series generated by our model with data on daily returns over ten years for two major financial indices, the Dow Jones and the S&P500, and on daily returns of two well-known company stocks, IBM and Microsoft, over five years. Copyright EDP Sciences/Società Italiana di Fisica/Springer-Verlag 2007

Suggested Citation

  • 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;EDP Sciences, vol. 56(1), pages 47-52, March.
  • Handle: RePEc:spr:eurphb:v:56:y:2007:i:1:p:47-52
    DOI: 10.1140/epjb/e2007-00089-3
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