Stock Return Predictability and the Adaptive Markets Hypothesis: Evidence from Century Long U.S. Data
29 Pages Posted: 26 Jan 2010
Date Written: January 24, 2010
We study return predictability of the Dow Jones Industrial Average indices from 1900 to 2009. We find strong evidence that time-varying return predictability is driven by changing market conditions, consistent with the implications of the adaptive markets hypothesis. During market crashes, no return predictability is observed, but an extreme degree of uncertainty is associated with return predictability. During fundamental economic or political crises, stock returns have been highly predictable with a moderate degree of uncertainty. During economic bubbles, return predictability and its uncertainty have been smaller than normal times.
Keywords: Economic bubbles, Fundamental crises, Financial crises, Market
JEL Classification: G12, G14, G15
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
The Effects of Economic News on Commodity Prices: Is Gold Just Another Commodity?
By Shaun K. Roache and Marco Rossi
Elusive Return Predictability: Discussion
Rationality in Precious Metals Forward Markets: Evidence of Behavioural Deviations in the Gold Markets
By Raj Aggarwal, Brian M. Lucey, ...