Are European Equity Markets Efficient? New Evidence from Fractal Analysis

International Review of Financial Analysis, Vol. 20, No. 2, pp. 59-67, April 2011

Posted: 9 Apr 2011

See all articles by Enrico Onali

Enrico Onali

University of Exeter Business School

John Goddard

Bangor University - Bangor University

Multiple version iconThere are 2 versions of this paper

Date Written: February 2011

Abstract

We report an empirical analysis of long-range dependence in the returns of eight stock markets indices, using the Rescaled Range Analysis (RRA) to estimate the Hurst exponent. Monte Carlo and bootstrap simulations are used to construct critical values for the null hypothesis of no long-range dependence. The issue of disentangling short-range and long-range dependence is examined. Pre-filtering by fitting a (short-range) autoregressive model eliminates part of the long-range dependence when the latter is present, while failure to pre-filter leaves open the possibility of conflating short-range and long-range dependence. There is strong evidence of long-range dependence for the small central European Czech stock market index PX-glob, and weaker evidence for two smaller western European stock market indices, MSE (Spain) and SWX (Switzerland). There is little or no evidence of long-range dependence for the other five indices, including those with the largest capitalizations among those considered, DJIA (US) and FTSE350 (UK). These results are generally consistent with prior expectations concerning the relative efficiency of the stock markets examined.

Suggested Citation

Onali, Enrico and Goddard, John, Are European Equity Markets Efficient? New Evidence from Fractal Analysis (February 2011). International Review of Financial Analysis, Vol. 20, No. 2, pp. 59-67, April 2011, Available at SSRN: https://ssrn.com/abstract=1805049

Enrico Onali (Contact Author)

University of Exeter Business School ( email )

Exeter
United Kingdom

John Goddard

Bangor University - Bangor University ( email )

Bangor, Wales LL57 2DG
United Kingdom

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