Template-Type:ReDIF-Paper 1.0
Title: Multi-Fractal Processes as Models for Financial Returns: 
	Multi-Fractal Processes as Models for Financial Returns: A First
	Assessment
Author-Name: Lux, Thomas
Author-Postal: Thomas Lux
	Department of Economics, University of Bonn Adenauerallee 24 - 42,
	D-53113 Bonn,
Author-Homepage: 
Classification-JEL: C20, G12
Keywords: multi-fractality, long-range dependence, Hvlder spectrum
Abstract: Multi-fractal processes have been proposed as a new formalism for
	modeling the time series of returns in finance. The major attraction of
	these processes is their capability of generating various degrees of
	long-memory in different powers of returns - a feature that has been
	found to characterize virtually all financial prices. Furthermore,
	elementary variants of multi-fractal models are very parsimonious
	formalizations as they are essentially one-parameter families of
	stochastic processes. The aim of this paper is to provide a first
	assessment of the goodness-of-fit of this new class of models by
	applying them to four long time series from different financial markets
	(one exchange rate, two stock market indices and the price of gold). Our
	results are very encouraging in that the estimated models provide an
	astonishingly good fit to the unconditional distribution of the data and
	do even outperform estimates from a GARCH(1,1) specification. However,
	we also remark that a trade-off exists between goodness
	-of-fit for the unconditional distribution and the capability of the
	estimated processes to match the autocorrelation patterns of various
	moments.
Length:   pages
Creation-Date: 1999-08
Revision-Date: 
Handle: RePEc:bon:bonsfb:465