Unifractality and Multifractality in the Italian Stock Market

Abstract

Tests for the validity of the weak-form EMH in the Italian stock market are presented, based on examination of the fractal properties of the log returns series for the Mibtel index. The random walk hypothesis is evaluated against alternatives accommodating either unifractality or multifractality. Critical values for the test statistics are generated using Monte Carlo simulations of random Gaussian innovations. Evidence is reported of multifractality. Large positive moments of the distributions of returns measured at different frequencies are found to scale at a slower rate than the same moments for random Gaussian innovations, and the departure from random walk behaviour is statistically significant on standard criteria. The observed pattern is attributed primarily to antipersistence affecting large fluctuations in returns, or volatility clustering.

Keywords: Efficient Market Hypothesis, Fractal Market Hypothesis, Italy, Stock market

JEL Classification: C22, G12, G14