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Fractal Market Hypothesis: An In-Depth Review

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  • Ambati, Murari

Abstract

The Fractal Market Hypothesis (FMH) proposes that financial markets have fractal behaviors. Fractal behaviors are patterns that are primarily characterized by self-similarity. Furthermore, there are other methods to characterize fractal behaviors by checking long-range dependencies and for a non-linear structure. Thus, this paper showcases the theoretical and mathematical foundations of FMH. There is a significant focus on FMHs applications to financial markets. Furthermore, this includes focusing on volatility, market crashes, and long-range dependencies. The paper analyzes using fractal geometry, multifractal models, statistical tools, fractal dimension, and power-law distributions to model financial time series. This paper also compares FMH with classical market theories like the Efficient Market Hypothesis (EMH). We then highlight FMH’s capacity to describe real-world market phenomena better.

Suggested Citation

  • Ambati, Murari, 2025. "Fractal Market Hypothesis: An In-Depth Review," OSF Preprints rx3vj_v1, Center for Open Science.
    • Handle: RePEc:osf:osfxxx:rx3vj_v1
    DOI: 10.31219/osf.io/rx3vj_v1
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    References listed on IDEAS

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    1. Mohammad Arashi & Mohammad Mahdi Rounaghi, 2022. "Analysis of market efficiency and fractal feature of NASDAQ stock exchange: Time series modeling and forecasting of stock index using ARMA-GARCH model," Future Business Journal, Springer, vol. 8(1), pages 1-12, December.
    2. Benoit Mandelbrot & Adlai Fisher & Laurent Calvet, 1997. "A Multifractal Model of Asset Returns," Cowles Foundation Discussion Papers 1164, Cowles Foundation for Research in Economics, Yale University.
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