Economy – Quantitative Finance – Statistical Finance
Scientific paper
2007-12-11
Physica A 387(18), 4630-4636 (2008)
Economy
Quantitative Finance
Statistical Finance
11 pages
Scientific paper
10.1016/j.physa.2008.03.035
We empirically investigated the relationships between the degree of efficiency and the predictability in financial time-series data. The Hurst exponent was used as the measurement of the degree of efficiency, and the hit rate calculated from the nearest-neighbor prediction method was used for the prediction of the directions of future price changes. We used 60 market indexes of various countries. We empirically discovered that the relationship between the degree of efficiency (the Hurst exponent) and the predictability (the hit rate) is strongly positive. That is, a market index with a higher Hurst exponent tends to have a higher hit rate. These results suggested that the Hurst exponent is useful for predicting future price changes. Furthermore, we also discovered that the Hurst exponent and the hit rate are useful as standards that can distinguish emerging capital markets from mature capital markets.
Choi Sunghoon
Eom Cheoljun
Jung Woo-Sung
Oh Gabjin
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