What is Hurst exponent trading?

The Hurst exponent is a measure for the behaviour of the market. It shows if the market behaves in a random, trending or mean-reversion manner. This can be used to select the right trading strategy for your market.

Why is Hurst an exponent?

The Hurst exponent is used as a measure of long-term memory of time series. It relates to the autocorrelations of the time series, and the rate at which these decrease as the lag between pairs of values increases. The Hurst exponent is referred to as the “index of dependence” or “index of long-range dependence”.

How do you read the Hurst exponent?

A Hurst exponent value between 0 and 0.5 is indicative of anti-persistent behavior and the closer the value is to 0, the stronger is the tendency for the time series to revert to its long-term means value.

How do you calculate Hurst exponent in R?

5 Answers. Hurst exponent, H, can be calculated from fractal dimension, D, as D = 2 – H. I use the fractaldim package, available CRAN, to calculate fractal dimension. There is a complete description of the methodologies in Estimators of Fractal Dimension: Assessing the Roughness of Time Series and Spatial Data.

Is Hurst exponent value useful in forecasting financial time series?

We estimated Hurst exponent of twelve stock index series from across the glove using daily values of for past ten years and found that the Hurst exponent value of the full series is around 0.50 confirming market efficiency.

Can Hurst exponent be greater than 1?

It is used to measure long range dependence in a time series. While the significant Hurst Exponent value is between 0 and 1, it is possible for DFA to produce Hurst Exponent values greater than 1. Hurst values greater than 1 indicate non-stationarity or unsuccessful detrending (Bryce et al., 2001).

What is rescaled range analysis?

Rescaled range analysis is a statistical technique used to analyze trends in a time series. It was developed by British hydrologist Harold Edwin Hurst to predict flooding on the Nile river.

What is Hurst phenomenon?

The Hurst phenomenon is a well-known feature of long-range persistence first observed in hydrological and geophysical time series by E. Hurst in the 1950s. It has also been found in several cases in turbulence time series measured in the wind tunnel, the atmosphere, and in rivers.

How do you use a rescaled range?

Rescaled Range and the Hurst Exponent The rescaled range is calculated by dividing the range (maximum value minus minimum value) of the cumulative mean adjusted data points (sum of each data point minus the mean of the data series) by the standard deviation of the values over the same portion of the time series.

How do you calculate Hurst exponent in Python?

To calculate the Hurst exponent, we first calculate the standard deviation of the differences between a series and its lagged version, for a range of possible lags. We then estimate the Hurst exponent as the slope of the log-log plot of the number of lags versus the mentioned standard deviations.

How to calculate the Hurst exponent?

How To Calculate The Hurst Exponent. To calculate the Exponent, we need to divide the data into different chunks. For example, if you have the return data of BTC/USD for the past 8 days’ data, then you divide it into halves as follows: Following the example of 8 observations for illustrative purposes only 1:

Is Hurst mean reverting or momentum trading?

Instead, Hurst indicates that it is moderately mean reverting over short time periods and tends to exhibit momentum over the longer term. I find this to be a pleasing result, one that is in line with the results of Jagadeesh and Titman (1993), who investigated momentum and found that multiple-month relative returns predict future returns.

Does Hurst give the same results every time?

However, if you’ve ever used Hurst, you know that it can be a bit bewildering: not only does it often give unexpected results, but it also returns different results depending on the implementation used in its calculation.

What does a high Hurst value indicate?

Hurst Value is more than 0.5 If the Hurst value is more than 0.5 then it would indicate a persistent time series (roughly translates to a trending market). Hurst Value is less than 0.5