Towards a New Framework on Efficient Markets

Research in International Business and Finance, 34, 294-308

19 Pages Posted: 29 Jan 2014 Last revised: 22 Jun 2016

See all articles by Tim Verheyden

Tim Verheyden

Arabesque Partners; Vrije Universiteit Brussel - Faculty of Economic and Social Sciences and Solvay Business School

Filip Van den Bossche

KU Leuven - Faculty of Business and Economics (FEB)

Lieven De Moor

Vrije Universiteit Brussel

Date Written: 2015

Abstract

Academic research on the efficiency of financial markets goes back several decades. Empirical evidence is mixed and academia is torn between two opposing convictions: the efficient market hypothesis (EMH) vs. behavioural finance. The recent Nobel Prize awarded to scholars from both sides of the debate confirms the stalemate. We apply multiple state-of-the-art efficiency tests in rolling windows of one year to leading global stock market indices to test the adaptive markets hypothesis (AMH), a proposed reconciling framework. We find the idea of dynamic and time-variant efficiency to be valid. Also the theoretical pattern of efficiency predicted by the AMH is in line with our results. Furthermore, we find that the effect of the most recent financial crisis on weak form market efficiency is most prominent on the U.S. stock market. The European and Japanese markets appear more consistently efficient over the course of the last 15 years.

Keywords: Efficient market hypothesis, weak form market efficiency, adaptive market hypothesis, variance ratio tests

JEL Classification: G14, G10

Suggested Citation

Verheyden, Tim and Van den Bossche, Filip and De Moor, Lieven, Towards a New Framework on Efficient Markets (2015). Research in International Business and Finance, 34, 294-308. Available at SSRN: https://ssrn.com/abstract=2382809 or http://dx.doi.org/10.2139/ssrn.2382809

Tim Verheyden (Contact Author)

Arabesque Partners ( email )

43 Grosvenor Street
LONDON, W1K 3HL
United Kingdom
+447878679314 (Phone)

HOME PAGE: http://www.arabesque.com/s-ray

Vrije Universiteit Brussel - Faculty of Economic and Social Sciences and Solvay Business School ( email )

Pleinlaan 2
Brussels, 1050
Belgium

Filip Van den Bossche

KU Leuven - Faculty of Business and Economics (FEB) ( email )

Warmoesberg 26
Brussel, 1000
Belgium

Lieven De Moor

Vrije Universiteit Brussel ( email )

Department of Business
Pleinlaan 2
Brussels, B-1050
Belgium
+32 498 616463 (Phone)

HOME PAGE: http://goo.gl/qntmYg

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