A multifractal approach for the stock market inefficiency

L. ZUNINO; B. M. TABAK; A. FIGLIOLA; D. G. PÉREZ; M. GARAVAGLIA; O. A. ROSSO

PHYSICA A - STATISTICAL AND THEORETICAL PHYSICS

Elsevier Science

Año: 2008 vol. 387 p. 6558 - 6566

0378-4371

In this paper, the multifractality degree in a collection of developed and emerging stock market indices is evaluated. Empirical results suggest that the multifractality degree can be used as a quantifier to characterize the stage of market development of world stock indices. We develop a model to test the relationship between the stage of market development and the multifractality degree and find robust evidence that the relationship is negative, i.e., higher multifractality is associated with a less developed market. Thus, an inefficiency ranking can be derived from multifractal analysis. Finally, a link with previous volatility time series results is established.