Hurst Exponent and Stock Market Persistence–Effects of Market Maturity and Bull/Bear Market

• Main Authors: Chi--Fen Yu, 游綺芬
• Other Authors: Chung-Jen Yang
• Format: Others
• Language: zh-TW
• Published: 2009
• Online Access: http://ndltd.ncl.edu.tw/handle/kgv558

碩士 === 銘傳大學 === 財務金融學系碩士在職專班 === 97 === With the cyclical occurrences of booms and collapses in the market, many scholars are trying to find a traceable pattern and method to predict market behaviours. The Efficiency Market Hypothesis raised by FAMA suggests that historical data are reflected on stock prices, but it is not feasible to use historical data for the purpose of forecasting future stock prices to earn over-average return. By using non-linear Hurst Exponent, this study manages to avoid the limitations and drawbacks of the Efficiency Market Hypothesis, as well as taking the non-linear causality of market response to information into consideration. This paper has selected US, UK, France, Australia, Canada and Japan as samples for Developed Countries as well as Taiwan, Hong Kong, Malaysia, Singapore, Indonesia and Mainland China, as samples for Developing Countries. Sample data used is the major Stock Index of each country. Period covered is between the 1st of January 1988 to the 31st of January 2009. Analysis Methods used by this paper include: Rescaled Range Analysis, Aggregated Variance Method, Absolute Values of the Aggregated Series, Higuchi’s Method, etc. The goal is to verify if, in general, long-term memory or endurance exists in the different stock markets. In addition, the effect of market maturity and Bear/Bull Market on the continuance of the Hurst Exponent is also explored in this paper. 1.Extrapolations of the Hurst Exponent using the Rescaled Range Method are showing endurance patterns for both Developed Countries and Developing Countries. This confirms the reliability of this method, as cited in past researches, in capturing the endurance patterns of stock prices. 2.Amongst the Developing Countries, Malaysia, Indonesia, Mainland China and Taiwan are all showing higher Hurst Exponent values. It is suggested that market maturity of the Developing Countries is the reason for the near 0.5 value found for the Hurst Exponent, such maturity is bringing these countries closer to the Efficiency Market. 3.The Hurst Exponent is more evident in a Bear Market for Developed Countries, indicating that fluctuation is more persistent during the correction period for Developed Countries. 4.For Developing Countries, the Hurst Exponent tends to be more evident in a Bull Market and can be as high as 0.6. This indicates that, in these countries,stock price fluctuation tends to continue for a longer period in a Bull Market.This may be a reflection on the fact that investors in these markets tend to chase stocks on the rise. For Singapore and Hong Kong, where both cities are approaching Developed Country status in the financial arena, however,values for the Hurst Exponent were found to be higher in Bear Markets.