Could Investors’ Expectations Explain Temporal Variations in Hurst’s Exponent, Loci of Multifractal Spectra, and Statistical Prediction Errors? The Case of the S&P 500 Index
AbstractOver the periods 1998-2002 and 2009-2011, the S&P-500 Index went from persistence to anti-persistence mode, as measured by the Hurst index H. To uncover the reasons that characterize such a change, this paper uses a simple method that consists in treating quasi self-similar segments of the Index as initiators, and then finding appropriate generators with two intervals each to asymptotically model the strange attractor. The multifractal formalism shows that the change in persistence implies a corresponding change in the multifractal spectrum, and an enlargement of the invariant equilibrium set, making a market crash more likely, most probably due to a collapse of investors’ expectations. This also means that all statistical predictions made in one mode would have been off by an amount proportional to change in any element of the generalized set of dimensions in the other.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 41407.
Date of creation: 01 Feb 2012
Date of revision: 26 Feb 2012
Publication status: Published in International Business Research No. 5.Volume(2012): pp. 8-15
Persistence; Strange Equilibrium sets; Scaling Exponents; Multifractal Spectra; Generalized Dimensions of order q; Statistical-prediction-error;
Find related papers by JEL classification:
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
- C0 - Mathematical and Quantitative Methods - - General
- G00 - Financial Economics - - General - - - General
- A10 - General Economics and Teaching - - General Economics - - - General
- G01 - Financial Economics - - General - - - Financial Crises
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-09-30 (All new papers)
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