McCauley, Joseph L. and Gunaratne, Gemunu H. and Bassler, Kevin E. (2006): Hurst exponents, Markov processes, and fractional Brownian motion. Forthcoming in: Physica A (2007)

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Abstract
There is much confusion in the literature over Hurst exponents. Recently, we took a step in the direction of eliminating some of the confusion. One purpose of this paper is to illustrate the difference between fBm on the one hand and Gaussian Markov processes where H≠1/2 on the other. The difference lies in the increments, which are stationary and correlated in one case and nonstationary and uncorrelated in the other. The two and onepoint densities of fBm are constructed explicitly. The twopoint density doesn’t scale. The onepoint density for a semiinfinite time interval is identical to that for a scaling Gaussian Markov process with H≠1/2 over a finite time interval. We conclude that both Hurst exponents and one point densities are inadequate for deducing the underlying dynamics from empirical data. We apply these conclusions in the end to make a focused statement about ‘nonlinear diffusion’.
Item Type:  MPRA Paper 

Institution:  University of Houston 
Original Title:  Hurst exponents, Markov processes, and fractional Brownian motion 
Language:  English 
Keywords:  Markov processes; fractional Brownian motion; scaling; Hurst exponents; stationary and nonstationary increments; autocorrelations 
Subjects:  G  Financial Economics > G0  General > G00  General C  Mathematical and Quantitative Methods > C1  Econometric and Statistical Methods and Methodology: General 
Item ID:  2154 
Depositing User:  Joseph L. McCauley 
Date Deposited:  09. Mar 2007 
Last Modified:  14. Feb 2013 13:51 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/2154 