The Fractal Markets Hypothesis posits that financial markets exhibit non-random, self-similar dynamics governed by nonlinear processes rather than the efficient market assumptions underlying the Capital Asset Pricing Model (CAPM). This theory utilizes box-counting dimension to quantify market roughness and scale-invariance, where a fractal dimension between 1.0 and 2.0 indicates persistent structure capable of modeling power law distributions in volatility that contradict random walk theories. Consequently, financial analysis shifts from seeking single-period equilibria based on rational agent assumptions to identifying multi-scale patterns driven by complex system dynamics inherent in real-world economic data.
The Fractal Markets Hypothesis posits that financial markets exhibit non-random, self-similar dynamics governed by nonlinear processes rather than the efficient market assumptions underlying the Capi…