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Multiplicative random cascades with additional stochastic process in financial markets

Author

Listed:
  • Jun-ichi Maskawa

    (Seijo University)

  • Koji Kuroda

    (Nihon University)

  • Joshin Murai

    (Okayama University)

Abstract

Multiplicative random cascade model naturally reproduces the intermittency or multifractality, which is frequently shown among hierarchical complex systems such as turbulence and financial markets. As described herein, we investigate the validity of a multiplicative hierarchical random cascade model through an empirical study using financial data. Although the intermittency and multifractality of the time series are verified, random multiplicative factors linking successive hierarchical layers show a strongly negative correlation. We extend the multiplicative model to incorporate an additional stochastic term. Results show that the proposed model is consistent with all the empirical results presented here.

Suggested Citation

  • Jun-ichi Maskawa & Koji Kuroda & Joshin Murai, 2018. "Multiplicative random cascades with additional stochastic process in financial markets," Evolutionary and Institutional Economics Review, Springer, vol. 15(2), pages 515-529, December.
    • Handle: RePEc:spr:eaiere:v:15:y:2018:i:2:d:10.1007_s40844-018-0112-y
    DOI: 10.1007/s40844-018-0112-y
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    References listed on IDEAS

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    Cited by:

    1. Jun-ichi Maskawa & Koji Kuroda, 2020. "Model of continuous random cascade processes in financial markets," Papers 2010.12270, arXiv.org.
    2. Yuichi Ikeda, 2019. "Special feature: Econophysics 2017: synergetic fusion of econophysics and other fields of science—Part II," Evolutionary and Institutional Economics Review, Springer, vol. 16(1), pages 181-182, June.
    3. Saeedimoghaddam, Mahmoud & Stepinski, T.F., 2021. "Multiplicative random cascade models of multifractal urban structures," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 569(C).

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    More about this item

    Keywords

    Intermittency; Turbulence analogy; Mixed multiplicative-stochastic model;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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