Mandelbrot Market-Model and Momentum

Wilhelm Berghorn and Sascha Otto

International Journal of Financial Research, 2017, vol. 8, issue 3, 1-26

Abstract: Mandelbrot was one of the first who criticized the oversimplifications in finance modeling. In his view, markets have long-term memory, were fractal and thus much wilder than classical theory suggests. Recently, we were able to show that the scaling behaviour of trends, as defined by a specific trend decomposition using wavelets, are causing the momentum effect. In this work, we will show that this effect can be modeled by fractal trends. The so-called Mandelbrot Market-Model shows that markets are wilder compared with classical models. In conclusion, we derive what Mandelbrot always knew: There are no efficient markets.

Keywords: efficient market hypothesis; momentum effect; fractal markets; trends (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:jfr:ijfr11:v:8:y:2017:i:3:p:1-26

DOI: 10.5430/ijfr.v8n3p1

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