Empirical behavior of a world stock index from intra-day to monthly time scales

Breymann, Wolfgang; Lüthi, David; Platen, Eckhard

doi:10.21256/zhaw-4211

Please use this identifier to cite or link to this item: https://doi.org/10.21256/zhaw-4211

Publication type:	Article in scientific journal
Type of review:	Peer review (publication)
Title:	Empirical behavior of a world stock index from intra-day to monthly time scales
Authors:	Breymann, Wolfgang Lüthi, David Platen, Eckhard
DOI:	10.21256/zhaw-4211 10.1140/epjb/e2009-00341-x
Published in:	The European Physical Journal B
Volume(Issue):	71
Page(s):	511
Pages to:	522
Issue Date:	2009
Publisher / Ed. Institution:	Springer
ISSN:	1434-6028 1434-6036
Language:	English
Subjects:	Financial markets; Economics; Systems obeying scaling laws; Business and management
Subject (DDC):	332: Financial economics
Abstract:	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 5min horizon they originate in the foreign exchange market. 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.
Further description:	Erworben im Rahmen der Schweizer Nationallizenzen (http://www.nationallizenzen.ch)
URI:	https://digitalcollection.zhaw.ch/handle/11475/4664
Fulltext version:	Published version
License (according to publishing contract):	Licence according to publishing contract
Departement:	School of Engineering
Organisational Unit:	Institute of Data Analysis and Process Design (IDP)
Appears in collections:	Publikationen School of Engineering

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Breymann, W., Lüthi, D., & Platen, E. (2009). Empirical behavior of a world stock index from intra-day to monthly time scales. The European Physical Journal B, 71, 511–522. https://doi.org/10.21256/zhaw-4211

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, pp. 511–522. Available at: https://doi.org/10.21256/zhaw-4211.

W. Breymann, D. Lüthi, and E. Platen, “Empirical behavior of a world stock index from intra-day to monthly time scales,” The European Physical Journal B, vol. 71, pp. 511–522, 2009, doi: 10.21256/zhaw-4211.

BREYMANN, Wolfgang, David LÜTHI und Eckhard PLATEN, 2009. Empirical behavior of a world stock index from intra-day to monthly time scales. The European Physical Journal B. 2009. Bd. 71, S. 511–522. DOI 10.21256/zhaw-4211

Breymann, Wolfgang, David Lüthi, and Eckhard Platen. 2009. “Empirical Behavior of a World Stock Index from Intra-Day to Monthly Time Scales.” The European Physical Journal B 71: 511–22. https://doi.org/10.21256/zhaw-4211.

Breymann, Wolfgang, et al. “Empirical Behavior of a World Stock Index from Intra-Day to Monthly Time Scales.” The European Physical Journal B, vol. 71, 2009, pp. 511–22, https://doi.org/10.21256/zhaw-4211.