Fractal Dimension and Efficient Markets
|Author:||Mgr. Barbora Máková|
|Year:||2014 - summer|
|Leaders:|| prof. PhDr. Ladislav Krištoufek Ph.D.
|Work type:|| Finance, Financial Markets and Banking
|Awards and prizes:||M.A. with distinction from the Dean of the Faculty of Social Sciences for an excellent state-final examination performance.|
|Abstract:||The efficient market hypothesis is one of the most important propositions in finance theory and has been
subjected to years of rigorous empirical testing. We examine power of a new tool for evaluating market
efficiency, fractal dimension. Characteristics and abilities of fractal dimension measure are explored
through extensive Monte Carlo simulations. We prove that it provides an accurate evaluation of market's
efficiency and its changes. This approach is highly innovative and creates new possibilities for
examination of markets. The uniqueness of fractal dimension is in its ability to assign a numerical
ranking to examined series describing the level of (in)efficiency; it is accurate for small samples of
observations and quickly reflects changes in market efficiency structure.