A COMPARISON OF THREE HURST EXPONENT APPROACHES TO PREDICT NASCENT BUBBLES IN S&amp;P500 STOCKS

Fernández–Martínez, M.; Sánchez-Granero, M.A.; Torrecillas, María José Muñoz; McKelvey, Bill

doi:10.1142/s0218348x17500062

Cited by 25 publications

(25 citation statements)

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“…Fernández-Martínez et al ( 2017 ) suggest that the Hurst exponent of a time series is an authentic measure of herding behavior, and it was employed later by Mnif et al ( 2019 ), when examining herding behavior in Islamic markets and by Mnif et al ( 2020 ), when studying the herding behavior of cryptocurrency caused by Covid-19. The persistence of return series is an important determinant of multifractality.…”

Section: Resultsmentioning

confidence: 99%

“…Moreover, fractals along with the scaling concept are best used for measuring price bubbles (Ghosh & Kozarević, 2019 ). Recently, Mnif et al ( 2020 ) examined the herding behavior of the cryptocurrency market before and during Covid-19 by employing the technique of MFDFA with the Hurst Exponent and Magnitude of Long Memory (MLM), as suggested by Fernández-Martínez et al ( 2017 ) and Khuntia and Pattanayak ( 2020 ).…”

Section: Introductionmentioning

confidence: 99%

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Herding behavior during the Covid-19 pandemic: a comparison between Asian and European stock markets based on intraday multifractality

et al. 2021

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With the spread of Covid-19, investors’ expectations changed during 2020, as well as financial markets’ policy responses and the structure of global financial intermediation itself. These dynamics are studied in this paper, which analyzes quarterly changes in herding behavior by quantifying the self-similarity intensity of six stock markets in Asia and Europe. A multifractal detrended fluctuation analysis (MFDFA) is applied, using intraday trade prices with a 15-min frequency from Jan-2020 to Dec-2020. The empirical results confirm that Covid-19 had a significant impact on the efficiency of the stock markets under study, although with a quarterly varying impact. During the first quarter of the year, European stock markets remained efficient compared to Asian markets; in the subsequent two quarters, the Chinese stock market showed significant improvement in its efficiency and became the least inefficient market, with a decline in the market efficiency of the UK and Japan. Furthermore, European markets are more sensitive to asset losses than Asian markets, so investors are more likely to show herding in the former. Herding was at its peak during the 2nd quarter of 2020. These findings could be related to possible market inefficiencies and herding behavior, implying the possibility of investors forming profitable trading strategies.

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Section: Resultsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Herding behavior during the Covid-19 pandemic: a comparison between Asian and European stock markets based on intraday multifractality

et al. 2021

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“…As a part of these studies, this paper aimed to analyse the Islamic stock and Sukuk markets with new approaches based on the estimation of Hurst exponent and the roughness of the price series to evaluate their performance and deduce the presence of herding behaviour (HB). More specifically, this work provided an extension to the work of Fernández-Martínez et al (2017) which uses the Hurst exponent as an indicator to assess this behaviour.…”

Section: Introductionmentioning

confidence: 99%

Herding behaviour and Islamic market efficiency assessment: case of Dow Jones and Sukuk market

Mnif

Salhi

Jarboui

2019

IMEFM

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Purpose The purpose of this paper is to present the Islamic stock and Sukuk market efficiency and focus on the presence of investor herding behaviour (HB) captured by Hurst exponent estimation. Design/methodology/approach The Hurst exponent was estimated with various methods. The authors studied the evolving efficiency of the “Dow Jones” indices from 1 January 2010 to 30 December 2016 using a rolling sample of the Hurst exponent. In addition, they used a time-varying parameter method based on the Hurst of delayed returns. After that, the robust Hurst method was considered. In the next step, the efficiency of the different activity types of Islamic bonds was studied using an efficiency index. Finally, the Hurst exponent estimates were applied to assess the presence of HB. Findings The results show that, firstly, there’s a strong correlation between the “DJIM” and “DJSI” prices and returns. Secondly, by using robust Hurst estimate, it is observed that the “DJIM” is the most efficient market. The Hurst exponent estimation results show that HB is more intensive in the Islamic stock market. These results indicate also the inexistence of this behaviour in the studied Sukuk market. Research limitations/implications Sukuk as Islamic financial assets is recent. Their relative time series are not long enough to apply the long memory approach. Furthermore, this work can be extended to study other Islamic financial markets. Practical implications Herding affects risk-return characteristics of assets and has an impact on asset pricing models. Practitioners are interested in understanding herding and its timing as it might create profitable trading opportunities. Social implications This work analyses the impact of Islamic principles on the financial markets and their ability to understand some behavioural biases. Originality/value This study contributes to the literature by identifying the efficiency and the presence of HB with Hurst exponent estimation in Islamic markets.

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“…It also creates a novel application for the fractal CAPM: alerting regulators to sudden losses of liquidity and the emergence of incipient financial crises [184] (p. 8). The self-similarity exponent of financial time series may signal herding behavior, an ominous omen of many market crashes [185]. Abundant data "on smaller crises can provide quantifiable statistical laws for bubble formation and financial collapse on various scales" [186] (p. 7677).…”

Section: Applications and Implications Of Multifractal Analysismentioning

confidence: 99%

The Capital Asset Pricing Model

Chen

2021

Encyclopedia

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A COMPARISON OF THREE HURST EXPONENT APPROACHES TO PREDICT NASCENT BUBBLES IN S&P500 STOCKS

Cited by 25 publications

References 68 publications

Herding behavior during the Covid-19 pandemic: a comparison between Asian and European stock markets based on intraday multifractality

Herding behavior during the Covid-19 pandemic: a comparison between Asian and European stock markets based on intraday multifractality

Herding behaviour and Islamic market efficiency assessment: case of Dow Jones and Sukuk market

The Capital Asset Pricing Model

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