Testing market memory with the Hurst exponent

What if trends in financial markets are not anomalies, but the natural consequence of how markets function? In this episode, Niels and Richard explore the structural foundations of trend following. Drawing on research spanning 68 futures markets across four decades, Richard explains why markets exhibit persistent trends, fat-tailed returns, and volatility clustering. The discussion moves from oil market shocks to deeper questions about feedback loops, participant behavior, and regime shifts in financial markets. The conclusion is striking: trend following does not rely on fragile patterns. It aligns with fundamental structural properties embedded in how markets actually evolve.

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Episode TimeStamps:

00:00 - Introduction to the Systematic Investor Series

02:08 - Oil market shock and the structural setup behind the spike

06:10 - Why calm markets can hide explosive potential

11:47 - How oil shocks ripple through inflation and the global economy

15:29 - Why trend followers focus on process, not predictions

22:15 - A changing regime that may favor trend following

24:43 - The research behind The Fractals of Finance

25:25 - Market memory and the meaning of the Hurst exponent

31:22 - Why trends are structural rather than random patterns

36:25 - Fat tails and why extreme market moves are far more common than expected

41:12 - Divergent vs convergent market participants

45:29 - The hidden risks in traditional volatility targeting

49:33 - Phase transitions and regime shifts in markets

55:33 - Why trend following aligns with market structure

59:02 - Oil shocks, inflation risks, and the next potential market regime

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