Financial Stability Paper No 23: The Fractal Market Hypothesis and its implications for the stability of financial markets

Nicola Anderson and Joseph Noss
Additional contact information
Joseph Noss: Bank of England, Postal: Publications Group Bank of England Threadneedle Street London EC2R 8AH

No 23, Bank of England Financial Stability Papers from Bank of England

Abstract: Time series of financial market prices appear to exhibit fractal properties: that is, under magnification, their pattern becomes increasingly complex, and seems to repeat itself, with a pattern that is qualitatively similar to that of the overall structure. This paper examines why and how these fractal properties might arise, and considers their implications for understanding the causes of financial (in)stability. It offers a quantitative model of investor behaviour and price formation that seeks to account for fractal properties of market prices. It conjectures that the dynamic of market prices — in particular its self-similarity — might be caused by the interactions of agents with different investment horizons and differing interpretations of information. This structure appears to be associated with a special sort of stability that can be disrupted, causing prices to crash, if the normal interaction of these agents breaks down.

Keywords: financial regulation; fractal market hypothesis (search for similar items in EconPapers)
JEL-codes: G01 G15 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2013-08-23
Note: http://www.bankofengland.co.uk/financialstability/Pages/fpc/fspapers/fs_paper23.aspx
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

Downloads: (external link)
https://www.bankofengland.co.uk/-/media/boe/files/ ... of-financial-markets Full text (application/pdf)

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:boe:finsta:0023

Access Statistics for this paper

More papers in Bank of England Financial Stability Papers from Bank of England Bank of England, Threadneedle Street, London, EC2R 8AH. Contact information at EDIRC.
Bibliographic data for series maintained by Digital Media Team ().