Fractal Markets, Frontiers, and Factors
66 Pages Posted: 10 Oct 2019
Date Written: September 26, 2019
In this work we develop an alternative view to the modern finance theory that essentially suggests equilibria in efficient markets by taking a risk-based view of asset returns in stock markets. Based on a mathematical analysis of stock market data using multi-scale approaches, we will alternatively describe markets and factors as trend-based fractal processes and analyze well-known factor premiums, which leads to a return-based view of markets and a model of investors reacting to market environments. We conclude that markets could be viewed alternatively as fractal, non-stationary and, at most, asymptotically efficient.
Keywords: Momentum Effect, Low Volatility Effect, Value Effect, Size Effect, Efficient Market Theory, Mandelbrot, Fractional Brownian Motion, Fractal Markets
JEL Classification: G11, G12
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