Abstract

https://ssrn.com/abstract=2024552
 


 



The Rate of Market Efficiency


Rasa Karapandza


EBS Universität für Wirtschaft und Recht - EBS Business School - Department of Finance and Accounting

Jose M. Marin


Universidad Carlos III de Madrid

October 12, 2014


Abstract:     
We define two measures: the Model Performance Ratio (MPR), which ranks asset pricing models based on their ability to price random portfolios, and the Rate of Market Efficiency (RME), which measures market efficiency assuming the best pricing model (largest MPR). We find that: (i) market efficiency has almost doubled in the last four decades; (ii) the CAPM is the best performing model among five linear factor specifications. The first result is in sharp contrast with the evolution of thinking about market efficiency and the rise of behavioral finance; the second, casts serious doubts on the Fama and French paradigm.

Number of Pages in PDF File: 62

Keywords: market efficiency, MEH, Fama-French, pricing anomalies, momentum

JEL Classification: G12, G14, C58, N20, B26


Open PDF in Browser Download This Paper

Date posted: March 20, 2012 ; Last revised: October 13, 2014

Suggested Citation

Karapandza, Rasa and Marin, Jose M., The Rate of Market Efficiency (October 12, 2014). Available at SSRN: https://ssrn.com/abstract=2024552 or http://dx.doi.org/10.2139/ssrn.2024552

Contact Information

Rasa Karapandza (Contact Author)
EBS Universität für Wirtschaft und Recht - EBS Business School - Department of Finance and Accounting ( email )
Gustav-Stresemann-Ring 3
Wiesbaden, Hessen 65189
Germany

Jose M. Marin
Universidad Carlos III de Madrid ( email )
CL. de Madrid 126
Madrid, Madrid 28903
Spain
HOME PAGE: http://www.josemarin.com
Feedback to SSRN


Paper statistics
Abstract Views: 3,151
Downloads: 1,046
Download Rank: 15,175