Howtosignalprocessing
- How is Hurst exponent calculated?
- What is the Hurst phenomenon?
- How do you use Hurst exponent in trading?
- Can Hurst exponent be greater than 1?
How is Hurst exponent calculated?
The Hurst Exponent is estimated by fitting the power-law E[R(n)/S(n)]=C×nH to the data. This is done by taking the logarithm of both sides, and fitting a straight line. The slope of the line gives H (i.e. Hurst Exponent Estimate).
What is the Hurst phenomenon?
It describes the anomalous growth of range and constrains the behavior and predictability of these systems. The Hurst effect is frequently taken to be synonymous with Long-Range Dependence (LRD) and is typically assumed to be produced by a stationary stochastic process which has infinite memory.
How do you use Hurst exponent in trading?
If the Hurst exponent is above 0.5, the market shows a trending behaviour. Past moves are similar to current moves. Markets with a high Hurst exponent are perfect for trend following strategies. If the market went up in the past, there will be a better than 50% chance that it also moves up in the future.
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).
