Multi-Fractality in Foreign Currency Markets

Corazza, Marco; Malliaris, A. G.

Volume 6, Number 2 / June , Pages 65-130

Multinational Finance Journal, 2002, vol. 6, no. 2, pp. 65-98

Marco Corazza , University Ca’ Foscari of Venice, Italy Corresponding Author

A. G. Malliaris , Loyola University Chicago, U.S.A.

Abstract:
Several empirical studies have shown the inadequacy of the standard Brownian motion (sBm) as a model of asset returns. To correct for this evidence some authors have conjectured that asset returns may be independently and identically Pareto-Lévy stable (PLs) distributed, whereas others have asserted that asset returns may be identically - but not independently - fractional Brownian motion (fBm) distributed with Hurst exponents, in both cases, that differ from 0.5. In this article we empirically explore such non-standard assumptions for both spot and (nearby) futures returns for five foreign currencies: the British Pound, the Canadian Dollar, the German Mark, the Swiss Franc, and the Japanese Yen.

Keywords : exponent of Hurst; fractional Brownian motion; multi-fractal market hypothesis; Pareto-Levy stable process; R/S analysis
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