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Time-varying Hurst–Hölder exponents and the dynamics of (in)efficiency in stock markets

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  • Bianchi, Sergio
  • Pianese, Augusto

Abstract

The increasing empirical evidence against the paradigm that stock markets behave efficiently suggests to relax the too restrictive dichotomy between efficient and inefficient markets. Starting from the idea that financial prices evolve in a continuum of equilibria and disequilibria, we use the Hurst–Hölder exponent to quantify the pointwise degree of (in)efficiency and introduce the notion of α-efficiency. We then define and study the properties of two functions which are used to build indicators providing timely information about the market efficiency. We apply our tools to the analysis of four stock indexes representative of U.S., Europe and Asia.

Suggested Citation

  • Bianchi, Sergio & Pianese, Augusto, 2018. "Time-varying Hurst–Hölder exponents and the dynamics of (in)efficiency in stock markets," Chaos, Solitons & Fractals, Elsevier, vol. 109(C), pages 64-75.
    • Handle: RePEc:eee:chsofr:v:109:y:2018:i:c:p:64-75
    DOI: 10.1016/j.chaos.2018.02.015
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    Cited by:

    1. Matthieu Garcin, 2021. "Forecasting with fractional Brownian motion: a financial perspective," Working Papers hal-03230167, HAL.
    2. Matthieu Garcin, 2021. "Forecasting with fractional Brownian motion: a financial perspective," Papers 2105.09140, arXiv.org, revised Sep 2021.
    3. Brouty, Xavier & Garcin, Matthieu, 2024. "Fractal properties, information theory, and market efficiency," Chaos, Solitons & Fractals, Elsevier, vol. 180(C).

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