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The European Physical Journal B
ISSN: 1434-6028 (printed version)
ISSN: 1434-6036 (electronic version)
Abstract Volume 2 Issue 2 (1998) pp 277-282
"Direct" causal cascade in the stock market
A. Arnéodo (1), J.-F. Muzy (1), D. Sornette (2)(3) (a)
(1) Centre de Recherche Paul Pascal (CNRS UPR 8641), Université de Bordeaux I, avenue Schweitzer, 33600 Pessac, France
(2) Department of Earth and Space Science and Institute of Geophysics and Planetary Physics, University of California, Los Angeles, California 90095, USA
(3) Laboratoire de Physique de la Matière Condensée (CNRS URA 190), Université des Sciences, B.P. 70, Parc Valrose, 06108 Nice Cedex 2, France
Received: 9 January 1998 / Received in final form and accepted: 13 January 1998
Abstract: We use wavelets to decompose the volatility (standard deviation) of intraday (S&P500) return data across scales. We show that when investigating two-point correlation functions of the volatility logarithms across different time scales, one reveals the existence of a causal information cascade from large scales (i.e. small frequencies) to fine scales. We quantify and visualize the information flux across scales. We provide a possible interpretation of our findings in terms of market dynamics.
PACS. 02.50.-r Probability theory, stochastic processes, and statistics -05.40.+j Fluctuation phenomena, random processes, and Brownian motion -89.90.+n Other areas of general interest to physicists
(a) e-mail: sornette@naxos.unice.fr
Online publication: May 5, 1998
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