A Simple but Powerful Measure of Market Efficiency
19 Pages Posted: 19 Jul 2018 Last revised: 2 Feb 2019
Date Written: January 29, 2019
Abstract
We construct a simple measure to quantify the level of market efficiency. We apply this measure to investigate the level of market efficiency and analyze its variation over time. The main contribution of the new measure is that it makes it easy to compare market efficiency across assets, time, regions, and data frequencies. We find that markets are often efficient, but can be significantly inefficient over longer periods. Our empirical results indicates that in many periods of major economic events, financial markets becomes less efficient. This corroborates earlier results on market efficiency, and simplifies interpretation and comparisons.
Keywords: Market Efficiency, Adaptive Market Hypothesis
JEL Classification: G14, G15
Suggested Citation: Suggested Citation