Fractal Market Hypothesis and Markov Regime Switching Model: A Possible Synthesis and Integration

Authors

  • Mishelle Doorasamy University of Kwa-Zulu Natal
  • Prince Kwasi Sarpong University of KwaZulu-Natal

Abstract

Peters (1994) proposed the fractal market hypothesis (FMH) as an alternative to the efficient market hypothesis, following his criticism of the EMH. In this study, we analyse whether the fractal nature of a financial market determines its riskiness and degree of persistence as measured by its Hurst exponent. To do so, we utilize the Markov Switching Model to derive a persistence index (PI) to measure the level of persistence of selected indices on the Johannesburg Stock Exchange (JSE) and four other international stock markets. We conclude that markets with high Hurst exponents, show stronger persistence and less risk relative to markets with lower Hurst exponents.

Keywords: Fractal Market Hypothesis, Markov Switching Model, Efficient Market Hypothesis

JEL Classifications: G150, G140

Downloads

Download data is not yet available.

Author Biographies

Mishelle Doorasamy, University of Kwa-Zulu Natal

Lecturer, School of Accounting, Economics and Finance

Prince Kwasi Sarpong, University of KwaZulu-Natal

Lecturer, School of Accounting, Economics and Finance

Downloads

Published

2018-01-26

How to Cite

Doorasamy, M., & Sarpong, P. K. (2018). Fractal Market Hypothesis and Markov Regime Switching Model: A Possible Synthesis and Integration. International Journal of Economics and Financial Issues, 8(1), 93–100. Retrieved from https://www.econjournals.com/index.php/ijefi/article/view/5738

Issue

Section

Articles