Can one make any crash prediction in finance using the local Hurst exponent idea

By D. Grech, Z. Mazur. 2003

245 citations recorded by the source corpus.

We apply the Hurst exponent idea for investigation of DJIA index time-series data. The behavior of the local Hurst exponent prior to drastic changes in financial series signal is analyzed. The optimal length of the time-window over which this exponent can be calculated in order to make some meaningful predictions is discussed. Our prediction hypothesis is verified with examples of 1929 and 1987 crashes, as well as with more recent phenomena in stock market from the period 1995 to 2003. Some interesting agreements are found.

Subfields: Economics and Econometrics, Finance, Signal Processing

View Paper: https://www.semanticscholar.org/paper/66f88016f7b8b2cbcde3a712bc2cb3aa1943d77c

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In Economics and Econometrics

In Finance

In Signal Processing

Citations in the corpus

Forbidden patterns, permutation entropy and stock market inefficiency (2009, background): “Several authors have proposed the Hurst parameter as a measure of the stock market inefficiency [7–16].”
Rescaled Range Analysis and Detrended Fluctuation Analysis: Finite Sample Properties and Confidence Intervals (2010, methodology): “Introduction Long-range dependence and its presence in the financial time series has been discussed in several recent papers (Czarnecki et al. 2008; Grech and Mazur 2004; Carbone et al. 2004; Matos et al. 2008; Vandewalle et al. 1997; Alvarez-Ramirez et al. 2008; Peters 1994; Di Matteo et al. 2005; ”
Complexity-entropy causality plane: A useful approach to quantify the stock market inefficiency (2010, background): “Several authors have proposed the Hurst parameter as a measure of the stock market inefficiency [6–8,11–18].”
On Hurst exponent estimation under heavy-tailed distributions (2010, methodology): “…in financial time series have been widely discussed in several recent research papers, e.g. (Alvarez-Ramirez et al., 2008; Carbone et al., 2004; Czarnecki et al., 2008; Di Matteo, 2007; Di Matteo et al., 2005; Grech and Mazur, 2004; Matos et al., 2008; Peters, 1994; Vandewalle et al., 1997).”