Empirical Behavior of a World Stock Index from Intra-Day to Monthly Time Scales
Most of the papers that study the distributional and fractal properties of financial instruments focus on stock prices or foreign exchange rates. This typically leads to mixed results concerning the distributions of log-returns and some multi-fractal properties of exchange rates, stock prices, and regional indices. This paper uses a well diversified world stock index as the central object of analysis. Such index approximates the growth optimal portfolio, which is demonstrated under the benchmark approach, it is the ideal reference unit for studying basic securities. When denominating this world index in units of a given currency, one measures the movements of the currency against the entire market. This provides a least disturbed observation of the currency dynamics. In this manner, one can expect to disentangle, e.g., the superposition of the two currencies involved in an exchange rate. This benchmark approach to the empirical analysis of financial data allows us to establish remarkable stylized facts. Most important is the observation that the repeatedly documented multi-fractal appearance of financial time series is very weak and much less pronounced than the deviation of the mono-scaling properties from Brownian-motion type scaling. The generalized Hurst exponent H(2) assumes typical values between 0.55 and 0.6. Accordingly, autocorrelations of log-returns decay according to a power law, and the quadratic variation vanishes when going to vanishing observation time step size. Furthermore, one can identify the Student t distribution as the log-return distribution of a well-diversified world stock index for long time horizons when a long enough data series is used for estimation. The study of dependence properties, finally, reveals that jumps at daily horizon originate primarily in the stock market while at 5 min horizon they originate in the foreign exchange market. These results are contrasted with the behavior of foreign exchange rates. The principal message of the empirical analysis is that there is evidence that a diffusion model without multi-scaling could reasonably well model the dynamics of a broadly diversified world stock index.
|Date of creation:||01 Jun 2009|
|Publication status:||Published as: Breymann, W., Lüthi, D. and Platen, E., 2009, "Empirical Behavior of a World Stock Index from Intra-Day to Monthly Time Scales", The European Physical Journal B, 71(4), 511-522.|
|Contact details of provider:|| Postal: PO Box 123, Broadway, NSW 2007, Australia|
Phone: +61 2 9514 7777
Fax: +61 2 9514 7711
Web page: http://www.qfrc.uts.edu.au/
More information through EDIRC
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.:
- Eckhard Platen, 2006.
"A Benchmark Approach To Finance,"
Wiley Blackwell, vol. 16(1), pages 131-151.
- Eckhard Platen, 2004. "A Benchmark Approach to Finance," Research Paper Series 138, Quantitative Finance Research Centre, University of Technology, Sydney.
- Gençay, Ramazan & Dacorogna, Michel & Muller, Ulrich A. & Pictet, Olivier & Olsen, Richard, 2001. "An Introduction to High-Frequency Finance," Elsevier Monographs, Elsevier, edition 1, number 9780122796715. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:uts:rpaper:250. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Duncan Ford)
If references are entirely missing, you can add them using this form.