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Hurst exponent dynamics of S&P 500 returns: Implications for market efficiency, long memory, multifractality and financial crises predictability by application of a nonlinear dynamics analysis framework

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  • Vogl, Markus
Abstract
In this study, we conduct a rolling window approach to wavelet-filtered (denoised) S&P500 returns (2000−2020) to obtain time-varying Hurst exponents. We discuss implications of Hurst exponent dynamics such as the complete invalidity of the efficient market hypothesis (EMH), an explicative rationale for momentum crashes and potentials for crises predictability. We analyse the dynamics of the Hurst exponents by applying a novel nonlinear dynamics analysis framework for non-stationary and nonlinear time series. The latter framework includes statistical tests, a recurrence quantification analysis (RQA), a wavelet multi-resolution analysis (MRA) and a multifractal detrended fluctuation analysis (MFDFA) paired with subsequent multifractal analyses. Besides, we display empirical findings taken out of the academic literature and critically elaborate on the impact of our findings and future prospects.

Suggested Citation

  • Vogl, Markus, 2023. "Hurst exponent dynamics of S&P 500 returns: Implications for market efficiency, long memory, multifractality and financial crises predictability by application of a nonlinear dynamics analysis framewo," Chaos, Solitons & Fractals, Elsevier, vol. 166(C).
    • Handle: RePEc:eee:chsofr:v:166:y:2023:i:c:s0960077922010633
    DOI: 10.1016/j.chaos.2022.112884
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    Keywords

    Hurst exponent dynamics; Market efficiency; Long memory; Multifractality; Financial crises; Nonlinear analysis framework; Momentum crashes;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G01 - Financial Economics - - General - - - Financial Crises
    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics

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