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

Mishelle Doorasamy and Prince Kwasi Sarpong
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Mishelle Doorasamy: School of Accounting, Economics and Finance, University of Kwa-Zulu Natal, Westville campus, South Africa,
Prince Kwasi Sarpong: School of Accounting, Economics and Finance, University of Kwa-Zulu Natal, Westville campus, South Africa,

International Journal of Economics and Financial Issues, 2018, vol. 8, issue 1, 93-100

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 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 (search for similar items in EconPapers)
JEL-codes: G14 G15 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eco:journ1:2018-01-13

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