A Simple but Powerful Measure of Market Efficiency

19 Pages Posted: 19 Jul 2018 Last revised: 2 Feb 2019

See all articles by Vu Le Tran

Vu Le Tran

Gjensidige Pensjonsforsikring AS; Nord University

Thomas Leirvik

Nord University; Nord University

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

Tran, Vu Le and Leirvik, Thomas, A Simple but Powerful Measure of Market Efficiency (January 29, 2019). Available at SSRN: https://ssrn.com/abstract=3204293 or http://dx.doi.org/10.2139/ssrn.3204293

Vu Le Tran (Contact Author)

Gjensidige Pensjonsforsikring AS ( email )

Schweigaards gate 14
Oslo, 0185
Norway

Nord University ( email )

Universitetsalléen 11
8049 Bodo
Norway

Thomas Leirvik

Nord University ( email )

Universitetsalléen 11
8049 Bodo
Norway
94818526 (Phone)

Nord University ( email )

Bodø, 8049
Norway

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