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Fractal Markets Hypothesis and the Global Financial Crisis: Wavelet Power Evidence

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  • Ladislav Kristoufek

Abstract

We analyze whether the prediction of the fractal markets hypothesis about a dominance of specific investment horizons during turbulent times holds. To do so, we utilize the continuous wavelet transform analysis and obtained wavelet power spectra which give the crucial information about the variance distribution across scales and its evolution in time. We show that the most turbulent times of the Global Financial Crisis can be very well characterized by the dominance of short investment horizons which is in hand with the assertions of the fractal markets hypothesis.

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  • Ladislav Kristoufek, 2013. "Fractal Markets Hypothesis and the Global Financial Crisis: Wavelet Power Evidence," Papers 1310.1446, arXiv.org.
    • Handle: RePEc:arx:papers:1310.1446
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    2. Fathi Abid & Bilel Kaffel, 2018. "The extent of virgin olive-oil prices’ distribution revealing the behavior of market speculators," Review of Quantitative Finance and Accounting, Springer, vol. 50(2), pages 561-590, February.
    3. Domino, Krzysztof & Błachowicz, Tomasz, 2015. "The use of copula functions for modeling the risk of investment in shares traded on world stock exchanges," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 424(C), pages 142-151.
    4. Rita Sousa & Luís Aguiar-Conraria & Maria Joana Soares, 2014. "Carbon Financial Markets: a time-frequency analysis of CO2 price drivers," NIPE Working Papers 03/2014, NIPE - Universidade do Minho.
    5. Sousa, Rita & Aguiar-Conraria, Luís & Soares, Maria Joana, 2014. "Carbon financial markets: A time–frequency analysis of CO2 prices," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 414(C), pages 118-127.
    6. David Procházka, 2014. "The Failure of Decision Usefulness Approach on an Example of the New Standard for Revenue Recognition [Selhání užitečnostního přístupu k formulaci účetních pravidel na příkladu nového standardu pro," Český finanční a účetní časopis, Prague University of Economics and Business, vol. 2014(3), pages 7-19.
    7. Domino, Krzysztof & Błachowicz, Tomasz, 2014. "The use of copula functions for modeling the risk of investment in shares traded on the Warsaw Stock Exchange," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 413(C), pages 77-85.
    8. Kaijian He & Rui Zha & Jun Wu & Kin Keung Lai, 2016. "Multivariate EMD-Based Modeling and Forecasting of Crude Oil Price," Sustainability, MDPI, vol. 8(4), pages 1-11, April.

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