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Soft Computing

, Volume 22, Issue 16, pp 5395–5406 | Cite as

Measuring and forecasting the volatility of USD/CNY exchange rate with multi-fractal theory

  • Limei Sun
  • Lina Zhu
  • Alec Stephenson
  • Jinyu Wang
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Abstract

Exchange rate fluctuations continue to intensify because of global economic integration. Research on the characteristics of exchange rate volatility is particularly urgent and important. In this paper, the fractal theory is introduced. The function box counting method and the qth-order moment structure partition function method are applied to test the multi-fractal features of USD/CNY exchange rate. On this basis, the multi-fractal spectrum analysis is carried out. It is found that USD/CNY exchange rate has multi-fractal characteristics and there is a strong connection between the standard deviation of the scale index and volatility of USD/CNY exchange rate. By adjusting the standard deviation of scaling exponents, we construct the multi-fractal volatility index and build a dynamic model for testing and forecasting the volatility of USD/CNY exchange rate based on fractal theory. The model \(\ln \bar{{S}}_\alpha -\hbox {ARMA} (1,1) \) for measuring and forecasting volatility proposed in our paper is demonstrated to be a good fit to the exchange rate data, which provides sound methodological reference for exchange rate volatility measurement.

Keywords

Fractal theory Function box counting method qth-Order structural segmentation function method Multi-fractal spectrum analysis 

Notes

Acknowledgements

Funding was provided by Educational Ministry of China (Grant no. 17YJC630131).

Compliance with ethical standards

Conflict of interest

The authors declare that there is no conflict of interest with other organization or people on this article.

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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2018

Authors and Affiliations

  • Limei Sun
    • 1
  • Lina Zhu
    • 1
  • Alec Stephenson
    • 2
  • Jinyu Wang
    • 1
  1. 1.School of Economics and ManagementHarbin Engineering UniversityHarbinChina
  2. 2.CSIROClaytonAustralia

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