Multifractal Model of Asset Returns versus real stock market dynamics

TL;DR

This paper evaluates the Lux extension of the Multifractal Model of Asset Returns (MMAR) using Warsaw Stock Exchange data, demonstrating its ability to replicate key features of real stock market behavior.

Contribution

It applies the Lux extension of MMAR to empirical data, showing its effectiveness in modeling real stock market multifractality.

Findings

Model reproduces key market dynamics

Captures multifractal properties of stock returns

Validates MMAR's relevance for financial modeling

Abstract

There is more and more empirical evidence that multifractality constitutes another and perhaps the most significant financial stylized fact. A realistic model of the financial dynamics should therefore incorporate this effect. The most promising in this respect is the Multifractal Model of Asset Returns (MMAR) introduced by Mandelbrot in which multifractality is carried by time deformation. In our study we focus on the Lux extension to MMAR and empirical data from Warsaw Stock Exchange. We show that this model is able to reproduce relevant aspects of the real stock market dynamics.