Relationship between efficiency and predictability in stock price change

Cheoljun Eom, Gabjin Oh and Woo-Sung Jung

Physica A: Statistical Mechanics and its Applications, 2008, vol. 387, issue 22, 5511-5517

Abstract: In this study, we evaluate the relationship between efficiency and predictability in the stock market. The efficiency, which is the issue addressed by the weak-form efficient market hypothesis, is calculated using the Hurst exponent and the approximate entropy (ApEn). The predictability corresponds to the hit-rate; this is the rate of consistency between the direction of the actual price change and that of the predicted price change, as calculated via the nearest neighbor prediction method. We determine that the Hurst exponent and the ApEn value are negatively correlated. However, predictability is positively correlated with the Hurst exponent.

Keywords: Hurst exponent; Approximate entropy; Nearest neighbor prediction; Efficient market hypothesis (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:387:y:2008:i:22:p:5511-5517

DOI: 10.1016/j.physa.2008.05.059

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