Do global financial crises validate assertions of fractal market hypothesis?
Arif Dar (),
Niyati Bhanja () and
Aviral Tiwari ()
International Economics and Economic Policy, 2017, vol. 14, issue 1, No 8, 153-165
Abstract The frequent occurrence of crises in recent decades has triggered a debate between the proponents of Efficient market hypothesis and Fractal market hypothesis. While, the proponents of Efficient market hypothesis view crises as non-existent and highly improbable, the advocates of Fractal market hypothesis view crises as the dominance of certain investment horizons. We test whether the assertion of Fractal Market hypothesis regarding the dominance of certain frequencies during financial crises hold for the global stock markets. Following Kristoufek (Sci Rep 3:2857, 2013) the wavelet power spectra based on continuous wavelet framework are used to test the said hypothesis. It is shown that stock markets around the globe indicate the dominance of higher frequencies during the crises periods, hence, validate the assertions of Fractal market hypothesis. The results drawn are robust to the use of different countries as well as different crises.
Keywords: Fractal market hypothesis; Crisis; Power spectrum; G01; G15; C58 (search for similar items in EconPapers)
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