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Statistical Approach to Implied Market Inefficiency Estimation

In: Mathematical and Statistical Methods for Actuarial Sciences and Finance

Author

Listed:
  • Fabrizio Di Sciorio

    (University of Almería, Department of Economics and Business)

  • Laura Molero González

    (University of Almería, Department of Economics and Business)

  • Juan E. Trinidad Segovia

    (University of Almería, Department of Economics and Business)

Abstract

This study aims to estimate the information efficiency of financial markets based on the Hurst exponent, with a focus on the S&P 500 index. The approach involves using statistical models to estimate the implied Hurst exponent through the historical series of the VIX (a proxy for implied volatility) with a 30-day time lag. In this way, the traditional backward-type Hurst estimation is reconciled with that derived from the VIX, which represents a forward-looking measure (a proxy for 30-day volatility). The test sample also includes the COVID pandemic period. The results reveal a good fit from ensemble stacking models, with the random forest standing out as the most effective approach in estimating the implied Hurst index.

Suggested Citation

  • Fabrizio Di Sciorio & Laura Molero González & Juan E. Trinidad Segovia, 2024. "Statistical Approach to Implied Market Inefficiency Estimation," Springer Books, in: Marco Corazza & Frédéric Gannon & Florence Legros & Claudio Pizzi & Vincent Touzé (ed.), Mathematical and Statistical Methods for Actuarial Sciences and Finance, pages 130-135, Springer.
    • Handle: RePEc:spr:sprchp:978-3-031-64273-9_22
    DOI: 10.1007/978-3-031-64273-9_22
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