The Efficient Market Hypothesis and the Fractal Market Hypothesis: Interfluves, Fusions, and Evolutions

Liu, Guang; Yu, Chih-Ping; Shiu, Shan-Neng; Shih, I-Tung

doi:10.1177/21582440221082137

Cited by 9 publications

(4 citation statements)

References 30 publications

(44 reference statements)

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“…Weak efficiency implies that all historical trading information is already incorporated into current equity prices, making achieving excess returns through historical data analysis challenging (Rossi & Gunardi 2018). In semi-strong efficiency, this idea extends to cover all information accessible to the public, suggesting that neither fundamental nor technical analysis can reliably produce outperformance (Liu et al, 2022). In the most stringent form, strong efficiency indicates that all information, regardless of its public or private nature, already factors into asset prices, making it impossible to gain an advantage even with insider information (Apergis, 2022).…”

Section: Theoretical Frameworkmentioning

confidence: 99%

Eficiencia del mercado y anomalías de calendario pos-COVID: perspectivas de bitcoin y ethereum

Sahu

2024

TAJ

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Este estudio investiga los efectos del día de la semana en el mercado digital, con un enfoque en bitcoin y ethereum, abarcando desde el 1º de julio de 2020 hasta el 31 de diciembre de 2023, en el período posterior al COVID-19. Empleando pruebas paramétricas y no paramétricas junto con el modelo GARCH (1,1), se analizó la dinámica del mercado. Los hallazgos indican un efecto significativo del día de la semana en ethereum, caracterizado por notables variaciones de rendimiento entre diferentes días, mientras que itcoin no muestra anomalías de calendario discernibles, lo que sugiere una mayor eficiencia del mercado. La susceptibilidad de ethereum a estos efectos subraya las complejidades actuales del mercado. Las disparidades en las anomalías del calendario surgen de la evolución de la dinámica del mercado, las diferencias metodológicas y la naturaleza especulativa del comercio de criptomonedas. Además, el mercado descentralizado y global complica la identificación precisa de los efectos en todo el mercado. Este estudio proporciona evidencia empírica sobre los efectos del día de la semana en el mercado de criptomonedas, lo que facilita a los inversionistas refinar las estrategias comerciales y la gestión de riesgos. Se justifica realizar más investigaciones para explorar los mecanismos subyacentes y monitorear los desarrollos regulatorios y tecnológicos para obtener información de los inversionistas.

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Section: Theoretical Frameworkmentioning

confidence: 99%

Eficiencia del mercado y anomalías de calendario pos-COVID: perspectivas de bitcoin y ethereum

Sahu

2024

TAJ

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“…Therefore, financial behavior can explain financial inefficiencies, such as market anomalies (Hudson & Muradoglu, 2020). In EMH, the market does not allow investors to get abnormal returns (Jiménez & Calisto, 2020;Liu et al, 2022). Conversely, market anomalies enable investors to obtain abnormal returns or profits (Jiménez & Calisto, 2020;Plastun, Kozmenko, Plastun, & Filatova, 2019).…”

Section: Literature Review and Hypothesismentioning

confidence: 99%

“…With the increasing interest in investing in the Indonesian capital market, as one of the emerging markets in the world, the availability of relevant information is increasingly needed by investors to determine investment strategies and make the right decisions. According to Liu, Yu, Shiu, and Shih (2022), one theory that investors can use as a reference is the Efficient Market Hypothesis (EMH) introduced by Fama (1970) is a weak, semi-strong, and strong form (Liu et al, 2022;Vukovic, Ingenito, & Maiti, 2023;Woo, Mai, McAleer, & Wong, 2020).…”

Section: Introductionmentioning

confidence: 99%

Investigation of winner-loser portfolio anomalies and size effect anomalies in LQ45 index, Indonesia stock exchange

Miswanto,

Putri

2023

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This study investigates the anomalies of winner-loser portfolios and anomalies of size effect on LQ45 stocks in the Indonesia Stock Exchange (IDX), period 2015-2020. The paired sample t-test (parametric) and Wilcoxon test (non-parametric) are used to test samples. Sample selection is carried out using the non-probability and purposive sampling methods. The shares of companies that met the sample criteria were 26. The primary data used cumulative abnormal returns and market capitalization as proxies for a company's stock size. The anomaly of the winner-loser effect phenomenon is observed by dividing the data into two periods: the formation period and the testing period. The periods are both short-term and long-term. The short-term period is six months, and the long-term is 12 months. The first finding shows reversals in average cumulative abnormal returns (CARs) on the winner-loser stock portfolio. In the testing period, the average CARs were turned down, and many average CARs became negative. Portfolio loser in the testing period, the average CARs reversed to positive. The second is a reversal in average CARs in winner-loser stock portfolios caused by the size effect. The performance of small winner-loser portfolios is proven to outperform big winners' portfolios. The reversal occurs in both the short-term and long-term. This finding suggests that behavioral finance can explain this market anomaly, and it is helpful for investors in coming up with strategies to get abnormal returns.

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“…Later, based on the random walk and IID assumptions, Black and Scholes [24] developed the Option Pricing Model, subsequently, Ross [5] proposed the Arbitrage Pricing Theory (APT). All those models are embraced by the EMH which formulated on the changes in price come only from unexpected new information [69]. The EMH with its three different classifications (weak, semi-strong and strong) evolved from the MPT [4].…”

Section: Introductionmentioning

confidence: 99%

Portfolio selection and fractal market hypothesis: Evidence from the London stock exchange

Aygören¹,

Uyar²

2023

Pamukkale J Eng Sci

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It is well known that the models supporting the Modern Portfolio Theory (MPT) and the Efficient Market Hypothesis (EMH) are constructed in the framework of random walk theory. However, a large and growing literature criticizes those models. The Fractal Market Hypothesis (FMH) was proposed as an alternative hypothesis to EMH. The motivation of this study is Peters ' [45,46] works that examine the portfolio selection case based on the non-normality framework. The aim of the study is to propose a new approach to theoretical framework of portfolio selection in terms of FMH. Daily observations of 92 stocks traded in London Stock Exchange are used to investigate the fractal behavior. Thus, the Hurst exponents as a means of indicator of a fractal structure are calculated for simulated portfolios. Results of the analysis show that the validity of MPT and EMH is questionable in London Stock Exchange. To examine the relationship between Hurst exponents (as a measure of risk) and returns, scattered diagrams are constructed for 5000 simulated portfolios. Existence of a pattern with a frontier is detected that may enable investors to optimize their portfolios. Further, The Hurst exponents of efficient frontier portfolios of Markowitz are calculated in order to investigate whether there is any linkage with the frontier of simulated portfolios. The results show that major deviations occur between these two frontiers. To understand these deviations, the Lyapunov exponents are suggested for detailed information. As a conclusion, it is recommended that investors should calculate an optimal solution with regards to the Hurst and Lyapunov exponents to maximize their returns. Peters'ın [45,46] portföy seçimini normal dağılıma uymayan çerçevede inceleyen çalışmalarına dayanmaktadır. Çalışmanın amacı, portföy seçiminin teorik çerçevesine FMH açısından yeni bir yaklaşım önermektir. Çalışmada, fraktal davranışı araştırmak için Londra Menkul Kıymetler Borsası'nda işlem gören 92 hisse senedinin günlük gözlemleri kullanılmıştır. Analizlerde, öncelikle simüle edilmiş portföyler için fraktal yapının bir göstergesi olarak Hurst üsleri hesaplanmıştır. Bulgular, Londra Menkul Kıymetler Borsası'nda MPT ve EMH'nin geçerliliğinin sorgulanabilir olduğunu göstermektedir. Getiriler ve bir risk ölçüsü olarak Hurst üsleri arasındaki ilişkiyi incelemek için 5000 simüle edilmiş portföy oluşturulmuştur. Daha sonra, simüle adilmiş portföyler üzerinde yatırımcıların getirilerini optimize etmelerini sağlayabilecek bir etkin sınırın varlığı tespit edilmiştir. Sonuçları detaylı incelemek amacıyla, simüle edilmiş etkin sınır ile Markowitz'in etkin sınır portföylerinin Hurst üsleri hesaplanmıştır ve karşılaştırmalar yapılmıştır. Sonuçta, bu iki etkin sınır arasında büyük sapmaların meydana geldiğini tespit edilmiştir. Son olarak, sapmaların davranışlarını anlamak için Lyapunov üsleri kullanılmıştır. Araştırma sonucunda, yatırımcıların getirilerini maksimize etmek için Hurst ve Lyapunov üslerine göre optimal bir çözüm hesaplamaları önerilmiştir. Modern Portföy T...

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The Efficient Market Hypothesis and the Fractal Market Hypothesis: Interfluves, Fusions, and Evolutions

Cited by 9 publications

References 30 publications

Eficiencia del mercado y anomalías de calendario pos-COVID: perspectivas de bitcoin y ethereum

Eficiencia del mercado y anomalías de calendario pos-COVID: perspectivas de bitcoin y ethereum

Investigation of winner-loser portfolio anomalies and size effect anomalies in LQ45 index, Indonesia stock exchange

Portfolio selection and fractal market hypothesis: Evidence from the London stock exchange

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