On the interplay between multiscaling and stocks dependence

TL;DR

This paper uncovers a nonlinear relationship between multiscaling in stock prices and their average correlation with other stocks, a robust stylized fact across various markets, unaffected by capitalization or kurtosis.

Contribution

It reveals a novel nonlinear dependence between multiscaling degree and stock correlation, suggesting a deeper underlying relationship in financial market dynamics.

Findings

Nonlinear dependence between multiscaling and stock correlation

Robust across different financial markets

Not explained by capitalization or kurtosis

Abstract

We find a nonlinear dependence between an indicator of the degree of multiscaling of log-price time series of a stock and the average correlation of the stock with respect to the other stocks traded in the same market. This result is a robust stylized fact holding for different financial markets. We investigate this result conditional on the stocks' capitalization and on the kurtosis of stocks' log-returns in order to search for possible confounding effects. We show that a linear dependence with the logarithm of the capitalization and the logarithm of kurtosis does not explain the observed stylized fact, which we interpret as being originated from a deeper relationship.