The financial rates of return from Latin American stock and currency markets are found to be non-normal, non-stationary, non-ergodic and long-term dependent, i.e., they have long memory. The degree of long-term dependence is measured by monofractal (global) Hurst exponents from wavelet...

Portfolio diversification may not always lower the portfolio risk, but may actually increase it. It depends on the distributional stability characteristics and long memory of the underlying rates of return. This disturbing result is based on the theoretical Fama-Samuelson proposition of 1965-67,...

Singer and Karnosky's (1995) exact and complete return attribution framework does not account for risk, since it ignores accumulated historical information. Its implied investment strategy selection is based on simple return maximization and ignores that investment strategies are correlated via...

Sherry's (1992) nonparametric pattern tests for neural information processing are used to ascertain if the Asian FX rates followed random walks. The stationarity and serial independence of the price changes are tested on minute-by-minute data for nine Asian currencies from January 1, 1997 to...

The recent rapid accumulation of anomalous empirical research results has made clear that the classical definition of financial risk based on asset classes only is ready for an epistemological change. Currently, the definition of financial risk suffers from three major deficiencies: (1)...

FX pricing processes are nonstationary and their frequency characteristics are time-dependent. Most do not conform to geometric Brownian motion, since they exhibit a scaling law with a Hurst exponent between zero and 0.5 and fractal dimensions between 1.5 and 2. This paper uses wavelet...

There are three crucial mathematical system concepts in Finance, which are either being confused or misapplied - uncertainty, complexity and rank. First, the concept of epistemic uncertainty is sufficient for modeling and the concept of probability is unnecessary. This is illustrated by...

Science progresses by improving its measurement apparatus. This holds true in finance too. The new methodology of quot;complete identification,quot; using simple algebraic geometry, throws new light on Galton's Error in finance and economics and the resulting mis-information of investors. Mutual...

This paper discusses various ways of measuring the degree of persistence or Long Memory (LM) of financial market risk in both its time and frequency domains. For the measurement of the risk, irregularity or quot;randomnessquot; of these series, we can compute a set of critical Lipschitz -...

The Value-at-Risk (VAR) measure is based on only the second moment of a rates of return distribution. It is an insufficient risk performance measure, since it ignores both the higher moments of the pricing distributions, like skewness and kurtosis, and all the fractional moments resulting from...