Kristoufek, L.: Fractal Markets Hypothesis and the Global Financial Crisis: Scaling, Investment Horizons and Liquidity
| Author(s): | prof. PhDr. Ladislav Krištoufek Ph.D., |
|---|---|
| Type: | Articles in journals with impact factor |
| Year: | 2012 |
| Number: | 0 |
| ISSN / ISBN: | |
| Published in: | Advances in Complex Systems 15(6), 1250065 arXiv PDF |
| Publishing place: | |
| Keywords: | Fractal markets hypothesis; scaling; fractality; investment horizons; efficient markets hypothesis |
| JEL codes: | |
| Suggested Citation: | |
| Grants: | 402/09/0965: New Approaches for monitoring and prediction of capital markets GACR P402/11/0948 Developing Analytical Framework for Energy Security: Time-Series Econometrics, Game Theory, Meta-Analysis and Theory of Regulation GAUK 5183/2010 (118310) Fractality and multi-fractality of financial markets: methods and applications |
| Abstract: | We investigate whether the fractal markets hypothesis and its focus on liquidity and investment horizons give reasonable predictions about the dynamics of the financial markets during turbulences such as the Global Financial Crisis of late 2000s. Compared to the mainstream efficient markets hypothesis, the fractal markets hypothesis considers the financial markets as complex systems consisting of many heterogenous agents, which are distinguishable mainly with respect to their investment horizon. In the paper, sev- eral novel measures of trading activity at different investment horizons are introduced through the scaling of variance of the underlying processes. On the three most liquid US indices - DJI, NASDAQ and S&P500 - we show that the predictions of the fractal markets hypothesis actually fit the observed behavior adequately. |
