Dynamical generalized Hurst exponent as a tool to monitor unstable periods in financial time series

Morales, Raffaello and Di Matteo, T. and Gramatica, Ruggero and Aste, Tomaso (2012) Dynamical generalized Hurst exponent as a tool to monitor unstable periods in financial time series. Physica A: Statistical Mechanics and its Applications, 391 (11). pp. 3180-3189. ISSN 03784371. (The full text of this publication is not available from this repository)

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Official URL
http://dx.doi.org/10.1016/j.physa.2012.01.004

Abstract

We investigate the use of the Hurst exponent, dynamically computed over a weighted moving time-window, to evaluate the level of stability/instability of financial firms. Financial firms bailed-out as a consequence of the 2007–2008 credit crisis show a neat increase with time of the generalized Hurst exponent in the period preceding the unfolding of the crisis. Conversely, firms belonging to other market sectors, which suffered the least throughout the crisis, show opposite behaviors. We find that the multifractality of the bailed-out firms increase at the crisis suggesting that the multi fractal properties of the time series are changing. These findings suggest the possibility of using the scaling behavior as a tool to track the level of stability of a firm. In this paper, we introduce a method to compute the generalized Hurst exponent which assigns larger weights to more recent events with respect to older ones. In this way large fluctuations in the remote past are less likely to influence the recent past. We also investigate the scaling associated with the tails of the log-returns distributions and compare this scaling with the scaling associated with the Hurst exponent, observing that the processes underlying the price dynamics of these firms are truly multi-scaling.

Item Type: Article
Subjects: Q Science
Divisions: Faculties > Science Technology and Medical Studies > School of Physical Sciences > Functional Materials Group
Depositing User: Tomaso Aste
Date Deposited: 20 Mar 2012 16:25
Last Modified: 07 May 2014 11:25
Resource URI: http://kar.kent.ac.uk/id/eprint/29168 (The current URI for this page, for reference purposes)
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