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
Over 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.
|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|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
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- Alvarez-Ramirez, Jose & Alvarez, Jesus & Rodriguez, Eduardo & Fernandez-Anaya, Guillermo, 2008. "Time-varying Hurst exponent for US stock markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(24), pages 6159-6169.
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- Dominique, C-René & Rivera-Solis, Luis Eduardo, 2011. "Mixed fractional Brownian motion, short and long-term Dependence and economic conditions: the case of the S&P-500 Index," MPRA Paper 34860, University Library of Munich, Germany.
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