Abstrakt
We introduce a new test for detection of power-law cross-correlations among a pair of time series - the rescaled covariance test. The test is based on a power-law divergence of the covariance of the partial sums of the long-range cross-correlated processes.
Utilizing a heteroskedasticity and auto-correlation robust estimator of the long-term covariance, we develop a test with desirable statistical properties which is well able to distinguish between short-and long-range cross-correlations. Such test should be used as a starting point in the analysis of long-range cross-correlations prior to an estimation of bivariate long-term memory parameters.
As an application, we show that the relationship between volatility and traded volume, and volatility and returns in the financial markets can be labeled as the power-law cross-correlated one.