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A risk measure of the stock market that is based on multifractality

Author

Listed:
  • Wang, Yi
  • Sun, Qi
  • Zhang, Zilu
  • Chen, Liqing

Abstract

By studying the parameters of the multifractal spectrum and their economic significance, a new multifractal measure Rf is constructed, which extracts price fluctuation information from different various levels. To evaluate the performance of the new multifractal measure, using 1-min high-frequency data from the US S&P 500 index and China’s CSI 300 index as the research samples, we empirically compare Rf with the mainstream risk measure model — conditional value at risk (CVaR). We apply the Spearman rank correlation test to the two measures, formulate investment strategies under the two measures according to a uniform investment standard, and simulate investments. The results show that Rf has risk identification capability and that its average prediction accuracy, investment benefit and Sharpe ratio are higher than those of the CVaR model.

Suggested Citation

  • Wang, Yi & Sun, Qi & Zhang, Zilu & Chen, Liqing, 2022. "A risk measure of the stock market that is based on multifractality," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 596(C).
    • Handle: RePEc:eee:phsmap:v:596:y:2022:i:c:s0378437122001960
    DOI: 10.1016/j.physa.2022.127203
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