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Profit profiles in correlated markets

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  • Simonsen, Ingve
  • Sneppen, Kim

Abstract

We consider a financial market where the asset price follows a fractional Brownian motion. A family of investment strategies are introduced, and we quantify profit possibilities for both persistent and anti-persistent markets. It is demonstrated that profit opportunities exists as long as the Hurst exponent H differs from 12, and that the profit increases with |H−12|. Furthermore, one systematically finds that the profit profile is not symmetric about H=12. Larger profits can be generated in persistent markets than in anti-persistent markets that corresponds to the same |H−12|.

Suggested Citation

  • Simonsen, Ingve & Sneppen, Kim, 2002. "Profit profiles in correlated markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 316(1), pages 561-567.
    • Handle: RePEc:eee:phsmap:v:316:y:2002:i:1:p:561-567
    DOI: 10.1016/S0378-4371(02)01024-5
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    References listed on IDEAS

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    1. Robert Mulligan, 2000. "A fractal analysis of foreign exchange markets," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 6(1), pages 33-49, February.
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    Cited by:

    1. Zunino, Luciano & Bariviera, Aurelio F. & Guercio, M. Belén & Martinez, Lisana B. & Rosso, Osvaldo A., 2016. "Monitoring the informational efficiency of European corporate bond markets with dynamical permutation min-entropy," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 456(C), pages 1-9.
    2. Zunino, Luciano & Zanin, Massimiliano & Tabak, Benjamin M. & Pérez, Darío G. & Rosso, Osvaldo A., 2009. "Forbidden patterns, permutation entropy and stock market inefficiency," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 388(14), pages 2854-2864.

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