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The multi-fractal model of asset returns : its estimation via GMM and its use for volatility forecasting

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dc.creator Lux, Thomas
dc.date 2003
dc.date.accessioned 2013-10-16T06:11:33Z
dc.date.available 2013-10-16T06:11:33Z
dc.date.issued 2013-10-16
dc.identifier Economics working paper Institut für Volkswirtschaftslehre, Kiel 2003,13
dc.identifier urn:nbn:de:101:1-200911022352
dc.identifier http://hdl.handle.net/10419/3031
dc.identifier ppn:368180670
dc.identifier ppn:368180670
dc.identifier RePEc:zbw:cauewp:1123
dc.identifier.uri http://koha.mediu.edu.my:8181/xmlui/handle/10419/3031
dc.description Multi-fractal processes have been proposed as a new formalism for modeling the time series of returns in finance. The major attraction of these processes is their ability to generate various degrees of long memory in different powers of returns - a feature that has been found to characterize virtually all financial prices. Furthermore, elementary variants of multi-fractal models are very parsimonious formalizations as they are essentially one-parameter families of stochastic processes. The aim of this paper is to provide the characteristics of a causal multi-fractal model (replacing the earlier combinatorial approaches discussed in the literature), to estimate the parameters of this model and to use these estimates in forecasting financial volatility. We use the auto-covariances of log increments of the multi-fractal process in order to estimate its parameters consistently via GMM (Generalized Method of Moment). Simulations show that this approach leads to essentially unbiased estimates, which also have much smaller root mean squared errors than those obtained from the traditional ?scaling? approach. Our empirical estimates are used in out-of-sample forecasting of volatility for a number of important financial assets. Comparing the multi-fractal forecasts with those derived from GARCH and FIGARCH models yields results in favor of the new model: multi-fractal forecasts dominate all other forecasts in one out of four cases considered, while in the remaining cases they are head to head with one or more of their competitors.
dc.language eng
dc.publisher Institut für Volkswirtschaftslehre, Kiel
dc.relation Economics working paper / Christian-Albrechts-Universität Kiel, Department of Economics 2003,13
dc.relation Economics working paper / Christian-Albrechts-Universität Kiel, Department of Economics 2003,13
dc.rights http://www.econstor.eu/dspace/Nutzungsbedingungen
dc.subject C20
dc.subject G12
dc.subject ddc:330
dc.subject multi-fractality , financial volatility , forecasting
dc.subject Kapitalertrag
dc.subject Börsenkurs
dc.subject Volatilität
dc.subject Prognoseverfahren
dc.subject Physik
dc.subject Stochastischer Prozess
dc.subject Zeitreihenanalyse
dc.subject Theorie
dc.title The multi-fractal model of asset returns : its estimation via GMM and its use for volatility forecasting
dc.type doc-type:workingPaper


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