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Fluctuation Analysis

RAVI SHARMA1, B. G. SHARMA2, D. P. BISEN3

and MALTI SHARMA3

1

Raipur-492001, C.G., INDIA.

2

Department of Physics and Computer science,

Govt. Science College Raipur-492010, C.G., INDIA.

3

School of studies in Physics and Astrophysics,

Pt. Ravishankar Shukla University, Raipur-492010, C.G., INDIA.

ABSTRACT

Detrended fluctuation analysis has been proved to be a useful

method in the analysis of nonstationary time series data. Since the

changes in the stock market indices are nonstationary, hence DFA

method is more suitable than R/S method. In this paper we study

National Stock Exchange (NSE) index for fractal behavior and

calculated scaling exponents for different time intervals.

Keywords: Detrended fluctuation analysis nonstationary time

series data.

1. INTRODUCTION

The recent body of work done by

physicists and others have produced

convincing evidences that the standard

model of Finance is not fully capable of

describing real markets, and hence new

ideas and models are called for, some of

which have come straight from Physics1.

Many problems in economics and finance

have recently started to attract the interest of

statistical physicists. Fundamental problems

are

whether

long-range

power-law

correlations exist in economic systems and

the explanation of economic cycles, indeed,

traditional methods (like spectral methods)

the Brownian motion idea is only

approximately right2,3,4. Different approaches

have been envisaged to measure the correlations and to analyze them. N. Vandewalle

and M. Ausloos performed a Detrended

Fluctuation Analysis (DFA) of the

USD/DEM ratio5 and they demonstrated the

existence of successive of economic activity

having different statistical behaviors. Ashok

Razdan6 performed the R/S analysis of

Bombay Stock Index and showed that BSE

index time series is monofractal and can be

represented by a fractional Brownian

motion.

In this paper we perform a detrended

Journal of Pure Applied and Industrial Physics Vol.2, Issue 3A, 1 July, 2012, Pages (286-402)

399

Ravi Sharma, et al., J. Pure Appl. & Ind. Phys. Vol.2 (3A), 398-402 (2012)

different scales eg. Daily, Weekly, Monthly,

Quarterly and Six monthly data and obtained

the scaling exponents for the respective data

set. We also perform the same study for

DAX and DJI index time series data

containing daily closing values.

The structure of the paper is as

follows. In Sec. 2 we provide the

mathematical background for calculating the

detrended fluctuation function and discuss

its physical meaning. In section 3, we apply

DFA method to the time series of NIFTY

value at different time scales. We address

the question of quantifying the information

in DFA profile for possible prediction.

Section 4 is related with the source of the

data used. A conclusion will be drawn in

sec.5.

2. DETRENDED FLUCTUATION

ANALYSIS (DFA)

A simplified and general definition

characterizes a time series as stationary if its

mean, standard deviation and higher

moments, as well as the correlation

functions, are invariant under time

translation. Signals that do not obey these

conditions are non stationary. Many methods

have been proposed as a tool for analysis of

time series data. Hurst7 proposed a scaling

exponent for the water level of Nile River.

However this method is applicable to

stationery data only. Such an approach gives

misleading result when the mean and

variance of the time series varies with time

i.e. the data is non stationery. To overcome

this complication, Peng et al.8 introduced a

modified root mean square analysis of a

random walk, termed detrended fluctuation

analysis (DFA), which may be applied to the

advantages of DFA over conventional

methods are that it permits the detection of

intrinsic self-similarity embedded in a

seemingly non stationary time series, and

also avoids the spurious detection of

apparent self-similarity, which may be an

artifact of extrinsic trends. This method has

been successfully applied to a wide range of

time series in recent years ranging from

sunspot radiation to heart beat rate pattern,

genetic pattern to stock market and so on.

Although the DFA algorithm works

well for certain types of non stationary time

series, it is not designed to handle all

possible non stationarities in real-world data.

Method for quantifying the correlation

property in non stationary time series is

based on the computation of a scaling

exponent d by means of a modified root

mean square analysis of a random walk.

2.1. CALCULATION OF DETRENDED

FLUCTUATION FUNCTION

To compute d from a time-series x(i)

[i=1,..., N], the time series is first integrated:

x(i), and k ranges between 1 and N.

Next, we detrend the integrated time series,

y(k), by subtracting the local trend, yn(k), in

each box. The root-mean-square fluctuation

of this integrated and detrended time series

is calculated by

Journal of Pure Applied and Industrial Physics Vol.2, Issue 3A, 1 July, 2012, Pages (286-402)

Ravi Sharma, et al., J. Pure Appl. & Ind. Phys. Vol.2 (3A), 398-402 (2012)

This computation is repeated over

all time scales (box sizes) to characterize the

relationship between F (n), the average

fluctuation, and the box size, n. Typically, F

(n) will increase with box size. A linear

relationship on a log-log plot indicates the

presence of power law (fractal) scaling.

Under such conditions, the fluctuations can

be characterized by a scaling exponent d, the

slope of the line relating log F (n) to log n.

F (n) is computed for all time-scales

n. Typically, F(n) increases with n, the "boxsize". If log F(n) increases linearly with log

n, then the slope of the line relating F(n) and

n in a log-log scale gives the scaling

exponent d.

behavior of the data as follows:

If d = 0.5, the time-series x(i) is uncorrelated

(white noise).

If d = 1.0, the correlation of the time-series

is the same of 1/f noise.

If d = 1.5, x (i) behaves like Brown noise

(random walk) Brownian motion.

3. DATA ANALYSIS

The DFA analysis was performed

for the data sets and the results obtained are

as follows:

7000

6000

n if t y in d e x

5000

L n F (N )

4000

3000

2000

1000

0

0

500

1000

Days of Year

1500

2000

400

Daily Data

5

4.5

4

3.5

3

2.5

2

1.5

1

0.5

0

0

0.5

1.5

Ln N

2.5

Quarterly data

Monthly Data

4

3.5

3

2.5

2

1.5

1

0.5

0

L n F (N )

L n F (N )

Fig. 1[A] NSE index daily closing values, 1[B] DFA profile for NSE index daily closing values from

12.08.2002 To 25.8.2010

2.5

2

0.4

0.8

Ln N

1.2

1.6

0.5

0.6

0.7

0.8

Ln N

0.9

1.1

Fig. 1[C] Dfa profile for NSE index monthly closing values, 1[D] DFA profile for Nse index quarterly

closing values from 12.08.2002 to 25.8.2010

Journal of Pure Applied and Industrial Physics Vol.2, Issue 3A, 1 July, 2012, Pages (286-402)

401

Ravi Sharma, et al., J. Pure Appl. & Ind. Phys. Vol.2 (3A), 398-402 (2012)

9000

8000

7000

6000

5000

4000

3000

2000

1000

0

4

L n F (N )

D a x In d e x

3

2

1

0

500 1000 1500 2000 2500 3000 3500 4000 4500 5000

Days of Year

0.5

1.5

2.5

3.5

3.5

Ln N

Fig. 2[A] DAX daily closing values, 2[B] DFA profile for DAX closing values

from 26-11-1990 To 25-08-2010

16000

14000

D o w In d e x

12000

L n F (N )

10000

8000

6000

4000

2000

0

0

1000

2000

3000

4000

5000

6000

0.5

1.5

2.5

Ln N

FIG. 3[A] DJI closing values, 3[B] DFA profile for DOW closing values From 03- 01- 1950 To 25-08-2010

We have considered the daily

closing value of indices till 26th sep. 2010.

Dataset of NIFTY contains 2015 data points

where as DAX data contains 4991 and DJI

data contains 5262 data points. The

weekends and holidays are not considered.

The data were collected from the website of

yahoo finance9.

5. RESULTS AND CONCLUSION

By using DFA analysis, we calculate

the fractal dimension of NSE index for daily,

variation of DFA function values of

NIFTY index with n shows that data follows

simple scaling behavior. Almost same result

is obtained for daily closing values of

DAX and DJI indices. Since the value of

slope is found to be near to 1.5, for all types

of data sets with small variance, the market

behavior shows nearly classical Brownian

random walk. But it is important to note

that we have used closing values of Indices

only. It will be interesting to look for

mono/multifractal features in short term

(single day data, but intra-day behavior).

Journal of Pure Applied and Industrial Physics Vol.2, Issue 3A, 1 July, 2012, Pages (286-402)

Ravi Sharma, et al., J. Pure Appl. & Ind. Phys. Vol.2 (3A), 398-402 (2012)

6. REFERENCES

1. Giovani L. Vasconcelos , Brazilian Jr.

of Phys., Vol. 34, 3B, 1039 (2004).

2. E.F.Fama, J. Finance 45, 1089 (1990).

3. B.B. Mandelbrot, Husincsa 36,349 (1963).

4. E.E.Peters, Fractal Market Analysts,

Wiley, New York, (1994).

5. N. Vandewalle and M. Ausloos, Physica

A 240, 454 (1997).

6. Ashok Razdan, Pramana, Vol. 58,

402

7. Hurst, H. E., Black, R. P. and Simaika,

Y. M. Long-Term Storage: An

Experimental Study. Constable, London.

xiv,145 p (1965).

8. Peng C.K., Buldyrev S.V., Havlin S.,

Simons M., Stanley H.E., Goldberger

AL. Phys. Rev. E; 49:1685-1689.

(1994);Peng C-K, Havlin S, Stanley HE,

Goldberger AL. Chaos 5:82-87(1995).

9. http://in.finance.yahoo.com

Journal of Pure Applied and Industrial Physics Vol.2, Issue 3A, 1 July, 2012, Pages (286-402)

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