Market Inefficiency is Multi-Dimensional: Evidence from 76 Price Indices

26 Pages Posted: 14 May 2010

See all articles by John R. Doyle

John R. Doyle

Cardiff University - Cardiff Business School

Catherine Huirong Chen

Middlesex University Business School

Date Written: May 11, 2010

Abstract

This paper is the first to present explicit empirical evidence that market inefficiency is multi-dimensional. Testing the Efficient Market Hypothesis (EMH) over 76 stock indices using 17 well accepted indicators (e.g. runs test), results show that most indices exhibit some type(s) of inefficiency and that indicators differ from each other in terms of statistical power and/or the type of inefficiency detected. A principal components analysis (PCA) demonstrates that indicators group along orthogonal dimensions, and hence a market can be inefficient by exhibiting short-term memory, long-term memory and/or calendar effects, which are all distinct sources of inefficiency. This research provides a clearer picture of the extent and nature of market inefficiency, helps explain conflicting previous findings, and suggests a new framework for studying market efficiency.

Keywords: Market Efficiency, Efficient Markets, EMH, Stock Indices, Statistical Tests, Multi-Dimensional

JEL Classification: G14, G15

Suggested Citation

Doyle, John and Chen, Catherine Huirong, Market Inefficiency is Multi-Dimensional: Evidence from 76 Price Indices (May 11, 2010). Available at SSRN: https://ssrn.com/abstract=1604420 or http://dx.doi.org/10.2139/ssrn.1604420

John Doyle (Contact Author)

Cardiff University - Cardiff Business School ( email )

Aberconway Building
Colum Drive
Cardiff, CF10 3EU
United Kingdom

HOME PAGE: http://www.cardiff.ac.uk/carbs/faculty/doylejr/index.html

Catherine Huirong Chen

Middlesex University Business School ( email )

The Burroughs
London, NW4 4BT
United Kingdom

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