CHAPTER 3
THE FRAMEWORKS
3.1 Theoretical Framework
Studies conducted in the past have contributed principles related to the estimation of the Hurst Exponent. The theories present in this research provide the foundation for estimating the Hurst exponent.
3.1.1. Brownian Motion theory
This theory was first coined by Robert Brown. It was primarily referred as the random motion observed under microscope of pollen immersed in water. In addition to that, Albert Einstein mentioned that this theory was caused by the random bombardment of (heat excited) water molecules on the pollen. Hence, it is just the molecular nature of matter. (Rodriguez, A.). Brownian motion was explained by assuming that the immersed particle was continuously batter by molecules found in the …show more content…
Moreover, investors and traders will not be able to earn excess profits. Simply, this theory states that investors cannot beat the market (Jonathan Clarke, Tomas Jandik, Gershon Mandelker).
According to Malkiel (1992), The Efficient Market Hypothesis (EMH) is described in three different forms:
The weak form of the Efficient Market Hypothesis (EMH) claims that prices fully reflect all available past information in the historical sequence of prices. Consequently, investors cannot apply a strategy that may yield abnormal profits based on the analysis of past price movements (also known as technical analysis). This form of market efficiency is associated to the Random Walk Hypothesis.
The semi-strong form of the Efficient Market Hypothesis (EMH) claims that the prices do not only reflect past information but all publicly available information. Thus, if markets are efficient in this context, the analysis of balance sheets, income statements, or any other available public information (also known as fundamental analysis) will not produce an abnormal amount of
THE FRAMEWORKS
3.1 Theoretical Framework
Studies conducted in the past have contributed principles related to the estimation of the Hurst Exponent. The theories present in this research provide the foundation for estimating the Hurst exponent.
3.1.1. Brownian Motion theory
This theory was first coined by Robert Brown. It was primarily referred as the random motion observed under microscope of pollen immersed in water. In addition to that, Albert Einstein mentioned that this theory was caused by the random bombardment of (heat excited) water molecules on the pollen. Hence, it is just the molecular nature of matter. (Rodriguez, A.). Brownian motion was explained by assuming that the immersed particle was continuously batter by molecules found in the …show more content…
Moreover, investors and traders will not be able to earn excess profits. Simply, this theory states that investors cannot beat the market (Jonathan Clarke, Tomas Jandik, Gershon Mandelker).
According to Malkiel (1992), The Efficient Market Hypothesis (EMH) is described in three different forms:
The weak form of the Efficient Market Hypothesis (EMH) claims that prices fully reflect all available past information in the historical sequence of prices. Consequently, investors cannot apply a strategy that may yield abnormal profits based on the analysis of past price movements (also known as technical analysis). This form of market efficiency is associated to the Random Walk Hypothesis.
The semi-strong form of the Efficient Market Hypothesis (EMH) claims that the prices do not only reflect past information but all publicly available information. Thus, if markets are efficient in this context, the analysis of balance sheets, income statements, or any other available public information (also known as fundamental analysis) will not produce an abnormal amount of