IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Fractal Markets Hypothesis and the Global Financial Crisis: Scaling, Investment Horizons and Liquidity

  • Ladislav Kristoufek

We investigate whether fractal markets hypothesis and its focus on liquidity and invest- ment horizons give reasonable predictions about dynamics of the financial markets during the turbulences such as the Global Financial Crisis of late 2000s. Compared to the mainstream efficient markets hypothesis, fractal markets hypothesis considers financial markets as com- plex systems consisting of many heterogenous agents, which are distinguishable mainly with respect to their investment horizon. In the paper, several novel measures of trading activity at different investment horizons are introduced through scaling of variance of the underlying processes. On the three most liquid US indices - DJI, NASDAQ and S&P500 - we show that predictions of fractal markets hypothesis actually fit the observed behavior quite well.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
File Function: Latest version
Download Restriction: no

Paper provided by in its series Papers with number 1203.4979.

in new window

Date of creation: Mar 2012
Date of revision:
Publication status: Published in Advances in Complex Systems 2012, Vol. 15(6), art. 1250065
Handle: RePEc:arx:papers:1203.4979
Contact details of provider: Web page:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Matteo, T. Di & Aste, T. & Dacorogna, Michel M., 2005. "Long-term memories of developed and emerging markets: Using the scaling analysis to characterize their stage of development," Journal of Banking & Finance, Elsevier, vol. 29(4), pages 827-851, April.
  2. Czarnecki, Łukasz & Grech, Dariusz & Pamuła, Grzegorz, 2008. "Comparison study of global and local approaches describing critical phenomena on the Polish stock exchange market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(27), pages 6801-6811.
  3. Barunik, Jozef & Kristoufek, Ladislav, 2010. "On Hurst exponent estimation under heavy-tailed distributions," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(18), pages 3844-3855.
  4. R. Cont, 2001. "Empirical properties of asset returns: stylized facts and statistical issues," Quantitative Finance, Taylor & Francis Journals, vol. 1(2), pages 223-236.
  5. Stanley, H.E & Amaral, L.A.N & Canning, D & Gopikrishnan, P & Lee, Y & Liu, Y, 1999. "Econophysics: Can physicists contribute to the science of economics?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 269(1), pages 156-169.
  6. Marco Corazza & A. G. Malliaris, 2002. "Multi-Fractality in Foreign Currency Markets," Multinational Finance Journal, Multinational Finance Journal, vol. 6(2), pages 65-98, June.
  7. Ladislav Kristoufek, 2012. "Multifractal Height Cross-Correlation Analysis: A New Method for Analyzing Long-Range Cross-Correlations," Papers 1201.3473,, revised Jan 2012.
  8. Kantelhardt, Jan W. & Zschiegner, Stephan A. & Koscielny-Bunde, Eva & Havlin, Shlomo & Bunde, Armin & Stanley, H.Eugene, 2002. "Multifractal detrended fluctuation analysis of nonstationary time series," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 316(1), pages 87-114.
  9. Domino, Krzysztof, 2011. "The use of the Hurst exponent to predict changes in trends on the Warsaw Stock Exchange," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(1), pages 98-109.
  10. Onali, Enrico & Goddard, John, 2011. "Are European equity markets efficient? New evidence from fractal analysis," International Review of Financial Analysis, Elsevier, vol. 20(2), pages 59-67, April.
  11. Domino, Krzysztof, 2012. "The use of the Hurst exponent to investigate the global maximum of the Warsaw Stock Exchange WIG20 index," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(1), pages 156-169.
  12. Onali, Enrico & Goddard, John, 2009. "Unifractality and multifractality in the Italian stock market," International Review of Financial Analysis, Elsevier, vol. 18(4), pages 154-163, September.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:arx:papers:1203.4979. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.