Determination of the Fractal Character of the Romanian Capital Market by Using Hurst Exponent

Abstract

Failure of classical statistical methods to model the behavior of stock market prices
determined, in a domino effect, the failure of the classical paradigm of regarding markets as efficient
systems. Alternative to this simple interpretation, markets should be regarded as far from equilibrum
dynamical systems, complex evolving structures that encompass millions of participants, holding into
their memory events that happened long time ago. This more realistic approach was developed by
Fractal Market Hypothesis, as an alternative to Efficient Market Hypothesis. R/S Analysis is a robust
tool for testing whether markets follow a Brownian motion or some memory effect is implied. The aim
of the paper is to determine the Hurst Exponent, for company ALRO S.A., for the period of time since
listing, until 16/07/2021. Results may generate indications about in the nature of the system represented
by the prices of ALRO S.A. Conclusion may be that the Romanian capital market, as ALRO is one of
the most representative companies listed at Bucharest Stock Exchange, has evolved from a very low
stability market to a more stable investment environment.