Institute of Information Theory and Automation

Publication details

Testing power-law cross-correlations: Rescaled covariance test

Journal Article

Krištoufek Ladislav

serial: European Physical Journal B vol.86, 10 (2013)

project(s): GA402/09/0965, GA ČR

keywords: power-law cross-correlations, testing, long-term memory

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abstract (eng):

We introduce a new test for detection of power-law cross-correlations among a pair of time series – the rescaled covariance test. The test is based on a power-law divergence of the covariance of the partial sums of the long-range cross-correlated processes. Utilizing a heteroskedasticity and auto-correlation robust estimator of the long-term covariance, we develop a test with desirable statistical properties which is well able to distinguish between short- and long-range cross-correlations. Such test should be used as a starting point in the analysis of long-range cross-correlations prior to an estimation of bivariate long-term memory parameters. As an application, we show that the relationship between volatility and traded volume, and volatility and returns in the financial markets can be labeled as the power-law cross-correlated one.


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Last modification: 21.12.2012
Institute of Information Theory and Automation