ANALYZING THE FRACTAL STRUCTURE OF STOCK RETURNS: EVIDENCE FROM ISTANBUL STOCK EXCHANGE

Year 2008, , 243 - 249, 10.06.2008

Mehmet Horasanlı

https://doi.org/10.14783/maruoneri.679718

Abstract

Efficient Market Hypothesis States that alt new information is reflected in the market price fully and immediately. Security returns are essentially unpredictable since they follow a random walk. Therefore the impact of the new information is essentially unpredictable; it is as likely to be negative as positive.
Financial asset returns are often modeled with a series of small, normally distributed changes. Brownian motion asserts the independence of the changes but there are patterns or trends in Capital market returns and they persist over time. Therefore security returns are not fully random.
This paper applies Hurst’s R/S (Rescaled Range) analysis to XU030 and XU100 index within different time horizons. The analysis proceeded from two basic principles: dependence of each period in time series data and fractional Brownian motion of time series. The persistence behaviour of İstanbul Stock Exchange is investigated. The results show that each series taken into consideration exhibits a biased process characteristic of fractal Brownian motion.

Keywords

Brownian Motion, Fractal Brownian Motion, Hurst Exponent, Rescaled Range Analysis

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