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The high order dispersion analysis based on first-passage-time probability in financial markets

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  • Liu, Chenggong
  • Shang, Pengjian
  • Feng, Guochen

Abstract

The study of first-passage-time (FPT) event about financial time series has gained broad research recently, which can provide reference for risk management and investment. In this paper, a new measurement–high order dispersion (HOD)–is developed based on FPT probability to explore financial time series. The tick-by-tick data of three Chinese stock markets and three American stock markets are investigated. We classify the financial markets successfully through analyzing the scaling properties of FPT probabilities of six stock markets and employing HOD method to compare the differences of FPT decay curves. It can be concluded that long-range correlation, fat-tailed broad probability density function and its coupling with nonlinearity mainly lead to the multifractality of financial time series by applying HOD method. Furthermore, we take the fluctuation function of multifractal detrended fluctuation analysis (MF-DFA) to distinguish markets and get consistent results with HOD method, whereas the HOD method is capable of fractionizing the stock markets effectively in the same region. We convince that such explorations are relevant for a better understanding of the financial market mechanisms.

Suggested Citation

  • Liu, Chenggong & Shang, Pengjian & Feng, Guochen, 2017. "The high order dispersion analysis based on first-passage-time probability in financial markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 471(C), pages 1-9.
    • Handle: RePEc:eee:phsmap:v:471:y:2017:i:c:p:1-9
    DOI: 10.1016/j.physa.2016.11.045
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    References listed on IDEAS

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