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Long term vs. short term comovements in stock markets: the use of Markov-switching multifractal models

  • Idier, J.

Empirical techniques to assess market comovements are numerous from cointegration to dynamic conditional correlations. This paper uses the fractal properties of asset returns and presents estimations of Markov switching multifractal models [as MSM] to give new insights about short and long run dependencies in stock returns. The main advantage of the model is to allow for the derivation of several indicators of comovements on heterogenous lasting horizons. Empirical applications are performed for four stock indices (CAC DAX FTSE NYSE) at daily frequency between 1996 and 2008.

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Paper provided by Banque de France in its series Working papers with number 218.

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Length: 39 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:bfr:banfra:218
Contact details of provider: Postal: Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS
Web page: http://www.banque-france.fr/

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  1. Sébastien Laurent & Luc Bauwens & Jeroen V. K. Rombouts, 2006. "Multivariate GARCH models: a survey," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(1), pages 79-109.
  2. deB. Harris, Frederick H. & McInish, Thomas H. & Shoesmith, Gary L. & Wood, Robert A., 1995. "Cointegration, Error Correction, and Price Discovery on Informationally Linked Security Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 30(04), pages 563-579, December.
  3. Laurent Calvet & Adlai Fisher, 2002. "Multifractality In Asset Returns: Theory And Evidence," The Review of Economics and Statistics, MIT Press, vol. 84(3), pages 381-406, August.
  4. Kallberg, Jarl & Pasquariello, Paolo, 2008. "Time-series and cross-sectional excess comovement in stock indexes," Journal of Empirical Finance, Elsevier, vol. 15(3), pages 481-502, June.
  5. Kearney, Colm & Poti, Valerio, 2006. "Correlation dynamics in European equity markets," Research in International Business and Finance, Elsevier, vol. 20(3), pages 305-321, September.
  6. Masih, Rumi & Masih, Abul M. M., 2001. "Long and short term dynamic causal transmission amongst international stock markets," Journal of International Money and Finance, Elsevier, vol. 20(4), pages 563-587, August.
  7. Laurent Calvet, 2000. "Forecasting Multifractal Volatility," Harvard Institute of Economic Research Working Papers 1902, Harvard - Institute of Economic Research.
  8. Laurent E. Calvet & Adlai J. Fisher & Samuel B. Thompson, 2004. "Volatility Comovement: A Multifrequency Approach," NBER Technical Working Papers 0300, National Bureau of Economic Research, Inc.
  9. Lux, Thomas, 2004. "The Markov-switching multi-fractal model of asset returns: GMM estimation and linear forecasting of volatility," Economics Working Papers 2004,11, Christian-Albrechts-University of Kiel, Department of Economics.
  10. Taisei Kaizoji & Thomas Lux, 2006. "Forecasting Volatility and Volume in the Tokyo Stock Market: Long Memory, Fractality and Regime Switching," Working Papers wp06-20, Warwick Business School, Finance Group.
  11. Angelos Kanas, 1998. "Linkages between the US and European equity markets: further evidence from cointegration tests," Applied Financial Economics, Taylor & Francis Journals, vol. 8(6), pages 607-614.
  12. repec:ebl:ecbull:v:3:y:2003:i:31:p:1-12 is not listed on IDEAS
  13. Benoit Mandelbrot, 1963. "The Variation of Certain Speculative Prices," The Journal of Business, University of Chicago Press, vol. 36, pages 394.
  14. Kristin J. Forbes & Roberto Rigobon, 2002. "No Contagion, Only Interdependence: Measuring Stock Market Comovements," Journal of Finance, American Finance Association, vol. 57(5), pages 2223-2261, October.
  15. Idier, J., 2006. "Stock exchanges industry consolidation and shock transmission," Working papers 159, Banque de France.
  16. Laurent Calvet & Adlai Fisher & Benoit Mandelbrot, 1999. "A Multifractal Model of Assets Returns," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-072, New York University, Leonard N. Stern School of Business-.
  17. Laurent Calvet & Adlai Fisher, 2003. "Regime-Switching and the Estimation of Multifractal Processes," Harvard Institute of Economic Research Working Papers 1999, Harvard - Institute of Economic Research.
  18. Jerome Fillol, 2005. "Modelisation multifractale du taux de change dollar/euro," Economie Internationale, CEPII research center, issue 104, pages 135-150.
  19. Laurent E. Calvet, 2004. "How to Forecast Long-Run Volatility: Regime Switching and the Estimation of Multifractal Processes," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 2(1), pages 49-83.
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