Fractal Analysis of Tehran Stock Exchange Index With RS Method
Subject Areas : Journal of Investment Knowledge
Fraydoon Rahnamay Roodposhti
1
(
Professor of IAU, Science and Research Branch
)
Parham Pedram
2
(
MSc in Financial Management, Sistan & Baluchestan University, Zahedan, Iran
)
Keywords: Rescale Range Analysis, Fractal Market Hypothesis, Efficient Market Hypothesis, local randomness, global determinism,
Abstract :
This paper deals with this issue, which can be summarized as the conflict between randomness and determinism. On the one hand, there are market analysts who feel that the market is perfectly deterministic; on the other, there is a group who feel that the market is completely random. We will see that there is a possibility that both are right to a limited extent. But what comes out of these partial truths is quite different from the outcome either group expects. We will use R/S analysis, or rescaled range analysis. R/S analysis can distinguish fractal from other types of time series, revealing the self-similar statistical structure. This structure fits a theory of market structure called the Fractal Market Hypothesis.. This reconciliation ties directly into the concept of local randomness and global determinism. One of the most important area that we focun on is capital market distributions. capital markets are not well described by the normal distribution and random walk theory. Yet, the Efficient Market Hypothesis continues to the dominant paradigm for how the markets work. Standard statistical analysis begins by assuming that the system under study is primarily random; that is, the causal process that created the time series has many component parts, or degrees of freedom, and the interaction of those components is so complex that a deterministic explanation is not possible. Only probabilities can help us understand and take advantage of the process. The underlying philosophy implies that randomness and determinism cannot coexist.
