Dynamic Hurst Exponent in Time Series

Carlos Arturo Soto Campos; Leopoldo Sánchez Cantú; Zeus Hernández Veleros

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arXiv · 1903.07809

Dynamic Hurst Exponent in Time Series

Carlos Arturo Soto Campos·Leopoldo Sánchez Cantú·Zeus Hernández Veleros

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Abstract

The market efficiency hypothesis has been proposed to explain the behavior of time series of stock markets. The Black-Scholes model (B-S) for example, is based on the assumption that markets are efficient. As a consequence, it is impossible, at least in principle, to "predict" how a market behaves, whatever the circumstances. Recently we have found evidence which shows that it is possible to find self-organized behavior in the prices of assets in financial markets during deep falls of those prices. Through a kurtosis analysis we have identified a critical point that separates time series from stock markets in two different regimes: the mesokurtic segment compatible with a random walk regime and the leptokurtic one that allegedly follows a power law behavior. In this paper we provide some evidence, showing that the Hurst exponent is a good estimator of the regime in which the market is operating. Finally, we propose that the Hurst exponent can be considered as a critical variable in just the same way as magnetization, for example, can be used to distinguish the phase of a magnetic system in physics.

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BibTeX RIS

Carlos Arturo Soto Campos, Leopoldo Sánchez Cantú, Zeus Hernández Veleros. 2019-03-19. Dynamic Hurst Exponent in Time Series. https://arxiv.org/abs/1903.07809

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