Featured Research

from universities, journals, and other organizations

Early detection of extreme financial events: Market crashes are anomalous features in financial data fractal landscape

Date:
June 16, 2014
Source:
Springer Science+Business Media
Summary:
Due to their previously discovered fractal nature, financial data patterns are self-similar when scaling up. New research shows that the most extreme events in financial data dynamics-reflected in very large price moves-are incompatible with multi-fractal scaling. Understanding the multi-fractal structure of financially sound markets could, ultimately, help in identifying structural signs of impending extreme events.

Analysing the adequation of financial data structure with its expected fractal scaling could help early detection of extreme financial events.

Due to their previously discovered fractal nature, financial data patterns are self-similar when scaling up. New research shows that the most extreme events in financial data dynamics-reflected in very large price moves-are incompatible with multi-fractal scaling. These findings have been published in The European Physical Journal B by physicist Elena Green from the National University of Ireland in Maynooth and colleagues. Understanding the multi-fractal structure of financially sound markets could, ultimately, help in identifying structural signs of impending extreme events.

The concept of multi-fractality-referring to the intertwining of many fractals-was first introduced in the context of physical turbulence studies. But it was subsequently applied to finance because of the two common features found in financial data, namely an underlying structure of heavy tails distribution and long-term dependence.

The authors performed multi-fractal testing on two sets of financial data: daily data from the Dow Jones Industrial Average (DJIA) index and minute-by-minute data from the Euro Stoxx 50 index. Where multi-fractal scaling occurs, the authors calculated the spectrum of fractal scaling factors using a method called Multi-fractal Detrended Fluctuation Analysis. This approach is used for determining the statistical self-affinity, or fractal nature, of a set of data, particularly relevant for data with long-memory characteristics.

The authors then performed further investigations of both data sets. This revealed that the temporal correlations within the data are a more significant source of the multi-fractal scaling than the distribution of the financial returns.

They also demonstrated that the extreme events which make up the heavy tails of the distribution of the Euro Stoxx 50 logarithmic graph of financial returns distort the scaling in the data set. This means that most extreme events adversely affect fractal scaling. Green and colleagues conclude that these results contrast with previous findings that extreme events contribute to multi-fractality.


Story Source:

The above story is based on materials provided by Springer Science+Business Media. Note: Materials may be edited for content and length.


Journal Reference:

  1. Elena Green, William Hanan, Daniel Heffernan. The origins of multifractality in financial time series and the effect of extreme events. The European Physical Journal B, 2014; 87 (6) DOI: 10.1140/epjb/e2014-50064-x

Cite This Page:

Springer Science+Business Media. "Early detection of extreme financial events: Market crashes are anomalous features in financial data fractal landscape." ScienceDaily. ScienceDaily, 16 June 2014. <www.sciencedaily.com/releases/2014/06/140616130718.htm>.
Springer Science+Business Media. (2014, June 16). Early detection of extreme financial events: Market crashes are anomalous features in financial data fractal landscape. ScienceDaily. Retrieved July 28, 2014 from www.sciencedaily.com/releases/2014/06/140616130718.htm
Springer Science+Business Media. "Early detection of extreme financial events: Market crashes are anomalous features in financial data fractal landscape." ScienceDaily. www.sciencedaily.com/releases/2014/06/140616130718.htm (accessed July 28, 2014).

Share This




More Computers & Math News

Monday, July 28, 2014

Featured Research

from universities, journals, and other organizations


Featured Videos

from AP, Reuters, AFP, and other news services

Teen's Phone Ignites Under Her Pillow; How Real Is The Risk?

Teen's Phone Ignites Under Her Pillow; How Real Is The Risk?

Newsy (July 28, 2014) — A Texas teen's Samsung phone apparently ignited while she slept, but what was the real problem here? Video provided by Newsy
Powered by NewsLook.com
Google's Next Frontier: The Human Body

Google's Next Frontier: The Human Body

Newsy (July 27, 2014) — Google is collecting genetic and molecular information to paint a picture of the perfectly healthy human. Video provided by Newsy
Powered by NewsLook.com
Cellphone Unlocking Bill Clears U.S. House, Heads to Obama

Cellphone Unlocking Bill Clears U.S. House, Heads to Obama

Reuters - US Online Video (July 27, 2014) — Congress gets rid of pesky law that made it illegal to "unlock" mobile phones without permission, giving consumers the option to use the same phone on a competitor's wireless network. Mana Rabiee reports. Video provided by Reuters
Powered by NewsLook.com
Congress OKs Unlocking Phones From Carriers

Congress OKs Unlocking Phones From Carriers

Newsy (July 26, 2014) — A bill legalizing "unlocking," or untethering a phone from its default wireless carrier, has passed Congress and is expected to be signed into law. Video provided by Newsy
Powered by NewsLook.com

Search ScienceDaily

Number of stories in archives: 140,361

Find with keyword(s):
 
Enter a keyword or phrase to search ScienceDaily for related topics and research stories.

Save/Print:
Share:  

Breaking News:
from the past week

In Other News

... from NewsDaily.com

Science News

Health News

Environment News

Technology News



Save/Print:
Share:  

Free Subscriptions


Get the latest science news with ScienceDaily's free email newsletters, updated daily and weekly. Or view hourly updated newsfeeds in your RSS reader:

Get Social & Mobile


Keep up to date with the latest news from ScienceDaily via social networks and mobile apps:

Have Feedback?


Tell us what you think of ScienceDaily -- we welcome both positive and negative comments. Have any problems using the site? Questions?
Mobile iPhone Android Web
Follow Facebook Twitter Google+
Subscribe RSS Feeds Email Newsletters
Latest Headlines Health & Medicine Mind & Brain Space & Time Matter & Energy Computers & Math Plants & Animals Earth & Climate Fossils & Ruins