Decoding Market Efficiency: A Multifractal Approach to Financial Market Dynamics

Authors

  • Roja Putera Mahyudin Department of Management, Islam Kalimantan University
  • Lamsah Lamsah Department of Management, Islam Kalimantan University

DOI:

https://doi.org/10.31098/bmss.v4i2.901

Keywords:

Efficient Market Hypothesis; Multifractal; Cryptocurrency

Abstract

Financial markets were traditionally analyzed using the Efficient Market Hypothesis (EMH), which argued that asset prices fully reflected all available information. This led to the belief that price movements were random, making it impossible to consistently outperform the market. However, emerging research had highlighted that markets could exhibit multifractality, where inefficiencies existed across different time scales, challenging the traditional EMH framework. Our study built on these insights by investigating the market efficiency of several asset classes, including stock market indices, cryptocurrencies (Bitcoin, Ethereum, USDT, and Binance), commodities (gold and crude oil), fixed income (U.S. 10-Year & 30-Year Treasury Bonds), and foreign exchange (EUR/USD & GBP/USD). Utilizing the Multifractal Detrended Fluctuation Analysis (MFDFA) method, we analyzed the multifractal properties and efficiency of each asset class. The results revealed that traditional assets exhibited monofractality, adhering more closely to the EMH. In contrast, cryptocurrencies displayed significant inefficiencies, likely due to their volatility, market structure, and susceptibility to external shocks. The findings provided valuable insights into portfolio diversification and risk management, suggesting that inefficiencies in certain asset classes might present both opportunities and risks for investors.

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Published

2024-10-14

How to Cite

Mahyudin, R. P. ., & Lamsah, L. (2024). Decoding Market Efficiency: A Multifractal Approach to Financial Market Dynamics. RSF Conference Series: Business, Management and Social Sciences, 4(2), 59–69. https://doi.org/10.31098/bmss.v4i2.901

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Section

Articles