Institute of Information Theory and Automation

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Publication details

Fractal Markets Hypothesis and the Global Financial Crisis: Scaling, Investment Horizons and Liquidity

Journal Article

Krištoufek Ladislav

serial: Advances in Complex Systems vol.15, 6 (2012)

project(s): 118310, GA UK, 265 504, SVV, GA402/09/0965, GA ČR

keywords: fractal markets hypothesis, scaling, fractality, investment horizons, efficient markets hypothesis

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abstract (eng):

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, several 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.


bocek: 2012-12-21 16:10