Fractal analysis of market (in)efficiency during the COVID-19

Massimiliano Frezza; Sergio Bianchi; Augusto Pianese

doi:10.1016/j.frl.2020.101851

Fractal analysis of market (in)efficiency during the COVID-19

Financ Res Lett. 2021 Jan:38:101851. doi: 10.1016/j.frl.2020.101851. Epub 2020 Nov 19.

Authors

Massimiliano Frezza¹, Sergio Bianchi^{2

3}, Augusto Pianese¹

Affiliations

¹ QuantLab, Dept. Economia e Giurisprudenza, University of Cassino and Southern Lazio, Italy.
² Dept. MEMOTEF, Sapienza University of Rome, Italy.
³ Int. Affiliate Professor, Dept. Finance and Risk Engineering, Tandon School of Engineering, New York University, USA.

Abstract

Using the multifractional Brownian motion as a model of the price dynamics, we analyze the impact of the COVID-19 pandemic on the efficiency of fifteen financial markets from Europe, US and Asia. We find that Asian markets (Hang Seng, Nikkei 225, Kospi) have recovered full efficiency, while European and US markets - after an initial rebound - have not yet returned to the pre-crisis level of efficiency. The inefficiency that currently characterizes US and European markets originates moderately high levels of volatility.

Keywords: COVID-19 pandemic; Efficient markets; Multifractional Brownian motion; Pointwise regularity exponent.