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Cointegration of stochastic multifractals with application to foreign exchange rates
Author(s) -
Anh V.V.,
Tieng Q.M.,
Tse Y.K.
Publication year - 2000
Publication title -
international transactions in operational research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.032
H-Index - 52
eISSN - 1475-3995
pISSN - 0969-6016
DOI - 10.1111/j.1475-3995.2000.tb00204.x
Subject(s) - cointegration , econometrics , brownian motion , fractional brownian motion , economics , foreign exchange , geometric brownian motion , range (aeronautics) , exchange rate , stochastic process , statistical physics , mathematics , statistics , physics , diffusion process , macroeconomics , monetary economics , materials science , economy , composite material , service (business)
The existing concept of cointegration applies to integrated processes (in the Box‐Jenkins ARIMA framework) or processes with long‐range dependence. These processes are assumed to display a monoscaling behaviour (such as that of a fractional Brownian motion). On the other hand, many turbulent processes are known to be intermittent, hence possess multiscaling characteristics. This paper develops a concept of cointegration for these stochastic multifractals. A model is suggested for testing for cointegration and applied to the exchange rates of three major currencies.