Fabrizio Di Sciorio, Raffaele Mattera, Juan Evangelista Trinidad Segovia
{"title":"Measuring conditional correlation between financial markets' inefficiency","authors":"Fabrizio Di Sciorio, Raffaele Mattera, Juan Evangelista Trinidad Segovia","doi":"10.3934/qfe.2023025","DOIUrl":null,"url":null,"abstract":"<abstract><p>Assuming that stock prices follow a multi-fractional Brownian motion, we estimated a time-varying Hurst exponent ($ h_t $). The Hurst value can be considered a relative volatility measure and has been recently used to estimate market inefficiency. Therefore, the Hurst exponent offers a level of comparison between theoretical and empirical market efficiency. Starting from this point of view, we adopted a multivariate conditional heteroskedastic approach for modeling inefficiency dynamics in various financial markets during the 2007 financial crisis, the COVID-19 pandemic and the Russo-Ukranian war. To empirically validate the analysis, we compared different stock markets in terms of conditional and unconditional correlations of dynamic inefficiency and investigated the predicted power of inefficiency measures through the Granger causality test.</p></abstract>","PeriodicalId":45226,"journal":{"name":"Quantitative Finance and Economics","volume":"39 1","pages":"0"},"PeriodicalIF":3.2000,"publicationDate":"2023-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Quantitative Finance and Economics","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.3934/qfe.2023025","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
Assuming that stock prices follow a multi-fractional Brownian motion, we estimated a time-varying Hurst exponent ($ h_t $). The Hurst value can be considered a relative volatility measure and has been recently used to estimate market inefficiency. Therefore, the Hurst exponent offers a level of comparison between theoretical and empirical market efficiency. Starting from this point of view, we adopted a multivariate conditional heteroskedastic approach for modeling inefficiency dynamics in various financial markets during the 2007 financial crisis, the COVID-19 pandemic and the Russo-Ukranian war. To empirically validate the analysis, we compared different stock markets in terms of conditional and unconditional correlations of dynamic inefficiency and investigated the predicted power of inefficiency measures through the Granger causality test.