Multifractal Detrended Fluctuation Analysis (MF-DFA) of Stock Market Indexes. Empirical Evidence from Seven Central and Eastern European Markets

Laura Raisa Miloş,Claudiu Boțoc,Cornel Haţiegan,Flavia Mirela Barna,Marius Cristian Miloş

doi:10.3390/su12020535

Abstract

In this paper, we present a comparative investigation of the multifractal properties of seven Central and Eastern European (CEE) stock markets using recent financial data up to August 2018 by employing seasonal and trend decompositions before applying multifractal detrended fluctuation analysis. We find that stock indices returns exhibit long-range correlations, supporting the idea that the stock markets in question are not efficient markets and have not reached a mature stage of market development. The results of the paper are of interest to investors looking for opportunities in these stock exchanges and also to policy makers in their endeavour of realizing institutional reforms in order to increase stock market efficiency and to support the sustainable growth of the financial markets.

Highlights

In its list of recommendations to accelerate capital market development in emerging economies, the World Economic Forum suggested stock market efficiency and transparency, with the objective of creating more liquidity in the market and improving the ability of market participants to assess market’s costs and benefits [1]
The application of multifractal detrended fluctuation analysis (MF-detrended fluctuation analysis (DFA)) to the remainder ensures capturing the dynamic characteristics of the inner fluctuations of the stock returns
We aim to determine the degree of efficiency of seven Central and Eastern European (CEE) stock markets, members of the European Union, for which the previous empirical literature suggests mixed results

Summary

Introduction

In its list of recommendations to accelerate capital market development in emerging economies, the World Economic Forum suggested stock market efficiency and transparency, with the objective of creating more liquidity in the market and improving the ability of market participants to assess market’s costs and benefits [1]. On the other hand, will continue their efforts in realizing reforms, meant to enhance stock market efficiency, in order to ensure that all financial assets are offering optimal risk-to-reward ratios [2]. Understanding the behavior of developing stock markets is very important when adopting the right public policies in order to enhance the role of the stock exchange in the sustainable development of the economy. On the other hand, understanding the current degree of market efficiency of the CEE countries, which are the latest members of the European Union, becomes more important in the context of their integration with other developed markets [12]

Objectives

Results

Conclusion