Stock return predictability and the adaptive markets hypothesis: Evidence from century-long U.S. data
AbstractThis paper provides strong evidence of time-varying return predictability of the Dow Jones Industrial Average index from 1900 to 2009. Return predictability is found to be driven by changing market conditions, consistent with the implication of the adaptive markets hypothesis. During market crashes, no statistically significant return predictability is observed, but return predictability is associated with a high degree of uncertainty. In times of economic or political crises, stock returns have been highly predictable with a moderate degree of uncertainty in predictability. We find that return predictability has been smaller during economic bubbles than in normal times. We also find evidence that return predictability is associated with stock market volatility and economic fundamentals.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Empirical Finance.
Volume (Year): 18 (2011)
Issue (Month): 5 ()
Contact details of provider:
Web page: http://www.elsevier.com/locate/jempfin
Economic bubbles; Economic crises; Adaptive markets hypothesis; Market efficiency; U.S. stock market;
Find related papers by JEL classification:
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Amélie Charles & Olivier Darné & Jae H. Kim, 2010.
"Exchange-Rate Return Predictability and the Adaptive Markets Hypothesis: Evidence from Major Foreign Exchange Rates,"
- Charles, Amélie & Darné, Olivier & Kim, Jae H., 2012. "Exchange-rate return predictability and the adaptive markets hypothesis: Evidence from major foreign exchange rates," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1607-1626.
- Bariviera, A.F. & Guercio, M. Belén & Martinez, Lisana B., 2012. "A comparative analysis of the informational efficiency of the fixed income market in seven European countries," Economics Letters, Elsevier, vol. 116(3), pages 426-428.
- Verheyden, Tim & De Moor, Lieven & Van den Bossche, Filip, 2013. "A Tale of Market Efficiency," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/408701, Katholieke Universiteit Leuven.
- Verheyden, Tim & Van den Bossche, Filip & De Moor, Lieven, 2013. "Towards a new framework on efficient markets: A rolling variance ratio test of the adaptive markets hypothesis," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/409355, Katholieke Universiteit Leuven.
- Rico Belda, Paz, 2013. "No linealidad y asimetría en el proceso generador del Índice Ibex35/Nonlinearity and Asymmetry in the Generator Process of Ibex35 Index," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 31, pages 555-576, Septiembr.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wendy Shamier).
If references are entirely missing, you can add them using this form.