OPTIMAL PORTFOLIO ALLOCATION UNDER FRACTAL THEORY

Turker Acikgoz and Busra Z. Temocin
Additional contact information
Turker Acikgoz: Department of Management, Baskent University, Baglica Campus, Ankara 06930, Etimesgut, Turkey
Busra Z. Temocin: Institute of Applied Mathematics, Middle East Technical University, Ankara 06800, Cankaya, Turkey

FRACTALS (fractals), 2025, vol. 33, issue 09, 1-20

Abstract: The efficient market hypothesis (EMH) has been dominating the literature of finance for a long time. Meanwhile, the problematic assumptions and inappropriateness of EMH in explaining real-life financial markets have dictated the significance of developing new theories and approaches. On the other hand, the Fractal Market Hypothesis postulates that financial markets are structured as fractals, they exhibit statistical self-similarity, and long-term memory in their time series. The portfolio applications to this hypothesis are quite limited in the literature. In this study, a portfolio optimization approach based on Fractal Market Hypothesis is developed. This paper suggests a portfolio optimization method, the Mean-MFTWXDFA which is based on multifractal temporally weighted cross-correlation analysis. The suggested method is also compared with those of classical portfolio applications such as the Mean-Variance, Mean-Value at Risk, and Mean-Conditional Value at Risk methods. Applications of the fractal-based portfolio perform reasonably well into out-of-sample analyses of a portfolio including the cryptocurrency market and three diversifying assets: oil, clean energy, and equity, outperforming conventional ones.

Keywords: Fractal Theory; Multifractals; Portfolio Optimization; Cryptocurrencies (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S0218348X25500811
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:fracta:v:33:y:2025:i:09:n:s0218348x25500811

Ordering information: This journal article can be ordered from

DOI: 10.1142/S0218348X25500811

Access Statistics for this article

FRACTALS (fractals) is currently edited by Tara Taylor

More articles in FRACTALS (fractals) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().