nep-fmk New Economics Papers
on Financial Markets
Issue of 2019‒02‒04
three papers chosen by

  1. Instantaneous Arbitrage and the CAPM By Lars Tyge Nielsen
  2. Nonextensive triplets in stock market indices By Dusan Stosic; Darko Stosic; Tatijana Stosic
  3. Market Efficiency and Volatility Persistence of Cryptocurrency during Pre- and Post-Crash Periods of Bitcoin: Evidence based on Fractional Integration By Yaya, OlaOluwa S; Ogbonna, Ephraim A; Mudida, Robert

  1. By: Lars Tyge Nielsen
    Abstract: This paper studies the concept of instantaneous arbitrage in continuous time and its relation to the instantaneous CAPM. Absence of instantaneous arbitrage is equivalent to the existence of a trading strategy which satisfies the CAPM beta pricing relation in place of the market. Thus the difference between the arbitrage argument and the CAPM argument in Black and Scholes (1973) is this: the arbitrage argument assumes that there exists some portfolio satisfying the capm equation, whereas the CAPM argument assumes, in addition, that this portfolio is the market portfolio.
    Date: 2019–01
  2. By: Dusan Stosic; Darko Stosic; Tatijana Stosic
    Abstract: Stock market indices are one of the most investigated complex systems in econophysics. Here we extend the existing literature on stock markets in connection with nonextensive statistical mechanics. We explore the nonextensivity of price volatilities for 34 major stock market indices between 2010 and 2019. We discover that stock markets follow nonextensive statistics regarding equilibrium, relaxation and sensitivity. We find nonextensive behavior in stock markets for developed countries, but not for developing countries. Distances between nonextensive triplets suggest that some stock markets might share similar nonextensive dynamics, while others are widely different. The current findings strongly indicate that the stock market represents a system whose physics is properly described by nonextensive statistical mechanics. Our results shed light on the complex nature of stock market indices, and establish another formal link with the nonextensive theory.
    Date: 2019–01
  3. By: Yaya, OlaOluwa S; Ogbonna, Ephraim A; Mudida, Robert
    Abstract: This paper investigates both market efficiency and volatility persistence in 12 cryptocurrencies during pre-crash and post-crash periods. We were motivated by the erroneous belief of some authors that driving currency, Bitcoin is inefficient. By considering robust fractional integration methods in linear and nonlinear set up, we found that markets of Bitcoin and most altcoins considered in our samples can be dubbed as efficient, and these are highly volatile particularly in the post-crash sample that we are now. These volatilities will then persist for shorter period than in the pre-crash period. Our work therefore renders important information to cryptocurrency market participants and portfolio managers.
    Keywords: Bitcoin; Cryptocurrency; Market efficiency; Fractional integration; Virtual currency
    JEL: C2 C22
    Date: 2019–01–13

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