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Apr 6

Allan variance

Posted by abiao at 16:37 | Code » Matlab | Comments(0) | Reads(8425)
Long term memory has frequently been observed in time series. Statistical theory for long term memory stochastic processes is largely different from the standard time series analysis, which assumes short term memory. The Allen variance is a particular measure of variability developed for long term memory processes.

Taken from Wikipedia, "The Allan variance, named after David W. Allan, is a measurement of stability in clocks and oscillators. It is also known as the two-sample variance. It is defined as one half of the time average of the squares of the differences between successive readings of the fractional frequency error sampled over the sampling period."

I am not quite convinced how to use Allan variance for stock returns, that is, given stock return time series, can we better estimate its long term variance by Allan variance? any idea?

Allan variance Matlab code is easy to write and can also be downloaded at: http://www.alamath.com/index.php?option=com_content&task=view&id=19&Itemid=31

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