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Multifractal Analysis of Time-Varying Market Efficiency: Implications for Adaptive Market Hypothesis

Authors: Ashok Chanabasangouda Patil, Dr. Shailesh Rastogi

Journal: TEST Engineering & Management

Publication date: 2020 May/June

Publisher: TEST Engineering & Management

URL: click here


Abstract:

This paper investigates the implications of the Adaptive Market Hypothesis (AMH) by studying the nature of cross-correlation between price and volume and assesses whether the price-volume relationship has a long memory. The MultifractalDetrended Fluctuation Analysis (MF-DFA) is used to capture the behavior of price and volume series whereas the MultifractalDetrended Cross-correlation Analysis (MF-DCCA) is used to capture the behavior of price-volume cross correlation.
The findings of this paper assert that the Indian Stock Market is not eļ¬ƒcient and provide opportunities for arbitrage from time-to-time. The small fluctuations in price are most likely to be followed by another small increment or vice versa, whereas large (small) fluctuations are followed by small (large) fluctuations. Similarly, a large (small) increment in volume is most likely followed by a small (large) increment in volume. A large (small) increment in volume is most likely to be followed by a large (small) increment in price. These findings have practical implications for traders and investors.