Multifractal temporally weighted detrended cross-correlation analysis to quantify power-law cross-correlation and its application to stock markets

• Published in: Chaos (Woodbury, N.Y.) Vol. 27; no. 6; p. 063111
• Main Authors: Wei, Yun-Lan, Yu, Zu-Guo, Zou, Hai-Long, Anh, Vo
• Format: Journal Article
• Language: English
• Published: United States 01.06.2017
• ISSN: 1089-7682
• DOI: 10.1063/1.4985637

A new method-multifractal temporally weighted detrended cross-correlation analysis (MF-TWXDFA)-is proposed to investigate multifractal cross-correlations in this paper. This new method is based on multifractal temporally weighted detrended fluctuation analysis and multifractal cross-correlation analysis (MFCCA). An innovation of the method is applying geographically weighted regression to estimate local trends in the nonstationary time series. We also take into consideration the sign of the fluctuations in computing the corresponding detrended cross-covariance function. To test the performance of the MF-TWXDFA algorithm, we apply it and the MFCCA method on simulated and actual series. Numerical tests on artificially simulated series demonstrate that our method can accurately detect long-range cross-correlations for two simultaneously recorded series. To further show the utility of MF-TWXDFA, we apply it on time series from stock markets and find that power-law cross-correlation between stock returns is significantly multifractal. A new coefficient, MF-TWXDFA cross-correlation coefficient, is also defined to quantify the levels of cross-correlation between two time series.