Strategy for investments from Zipf law(s)
M. Ausloos, Ph. Bronlet
TL;DR
This paper applies Zipf law analysis to financial indices to develop and evaluate simple investment strategies based on the time-dependent behavior of Zipf exponents and Hurst exponents.
Contribution
It introduces a novel approach combining Zipf law and Hurst exponent analysis to inform investment strategies on multiple financial indices.
Findings
Time-dependent Zipf exponents correlate with market returns.
The strategies show varying performance over different time periods.
Zipf law-based analysis provides insights into market dynamics.
Abstract
We have applied the Zipf method to extract the exponent for seven financial indices (DAX, FTSE; DJIA, NASDAQ, S&P500; Hang-Seng and Nikkei 225), after having translated the signals into a text based on two letters. We follow considerations based on the signal Hurst exponent and the notion of a time dependent Zipf law and exponent in order to implement two simple investment strategies for such indices. We show the time dependence of the returns.
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Taxonomy
TopicsComplex Systems and Time Series Analysis