Advanced Search
MyIDEAS: Login to save this article or follow this journal

Efficient or adaptive markets? Evidence from major stock markets using very long run historic data

Contents:

Author Info

  • Urquhart, Andrew
  • Hudson, Robert

Abstract

This paper empirically investigates the Adaptive Market Hypothesis (AMH) in three of the most established stock markets in the world; the US, UK and Japanese markets using very long run data. Daily data is divided into five-yearly subsamples and subjected to linear and nonlinear tests to determine how the independence of stock returns has behaved over time. Further, a five-type classification is proposed to distinguish the differing behaviour of stock returns. The results from the linear autocorrelation, runs and variance ratio tests reveal that each market shows evidence of being an adaptive market, with returns going through periods of independence and dependence. However, the results from the nonlinear tests show strong dependence for every subsample in each market, although the magnitude of dependence varies quite considerably. Thus the linear dependence of stock returns varies over time but nonlinear dependence is strong throughout. Our overall results suggest that the AMH provides a better description of the behaviour of stock returns than the Efficient Market Hypothesis.

Download Info

If 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.
File URL: http://www.sciencedirect.com/science/article/pii/S1057521913000379
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal International Review of Financial Analysis.

Volume (Year): 28 (2013)
Issue (Month): C ()
Pages: 130-142

as in new window
Handle: RePEc:eee:finana:v:28:y:2013:i:c:p:130-142

Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/620166

Related research

Keywords: Adaptive markets hypothesis; Market efficiency; Nonlinear tests; US stock market; UK stock market;

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Caraiani, Petre, 2012. "Nonlinear dynamics in CEE stock markets indices," Economics Letters, Elsevier, vol. 114(3), pages 329-331.
  2. Ito, Mikio & Sugiyama, Shunsuke, 2009. "Measuring the degree of time varying market inefficiency," Economics Letters, Elsevier, vol. 103(1), pages 62-64, April.
  3. Choi, In, 1999. "Testing the Random Walk Hypothesis for Real Exchange Rates," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(3), pages 293-308, May-June.
  4. Lim, Kian-Ping & Brooks, Robert D. & Hinich, Melvin J., 2008. "Nonlinear serial dependence and the weak-form efficiency of Asian emerging stock markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 18(5), pages 527-544, December.
  5. Alexandru Todea & Maria Ulici & Simona Silaghi, 2009. "Adaptive Markets Hypothesis - Evidence from Asia-Pacific Financial Markets," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 1(1), pages 007-013, December.
  6. Jegadeesh, Narasimhan & Titman, Sheridan, 1993. " Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," Journal of Finance, American Finance Association, vol. 48(1), pages 65-91, March.
  7. Andrew W. Lo, A. Craig MacKinlay, 1988. "Stock Market Prices do not Follow Random Walks: Evidence from a Simple Specification Test," Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 41-66.
  8. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
  9. Maria Rosa Borges, 2010. "Efficient market hypothesis in European stock markets," The European Journal of Finance, Taylor & Francis Journals, vol. 16(7), pages 711-726.
  10. Opong, Kwaku K. & Mulholland, Gwyneth & Fox, Alan F. & Farahmand, Kambiz, 1999. "The behaviour of some UK equity indices: An application of Hurst and BDS tests1," Journal of Empirical Finance, Elsevier, vol. 6(3), pages 267-282, September.
  11. Kim, Jae H. & Shamsuddin, Abul & Lim, Kian-Ping, 2011. "Stock return predictability and the adaptive markets hypothesis: Evidence from century-long U.S. data," Journal of Empirical Finance, Elsevier, vol. 18(5), pages 868-879.
  12. Kian-Ping Lim & Weiwei Luo & Jae H. Kim, 2013. "Are US stock index returns predictable? Evidence from automatic autocorrelation-based tests," Applied Economics, Taylor & Francis Journals, vol. 45(8), pages 953-962, March.
  13. Brock, William & Lakonishok, Josef & LeBaron, Blake, 1992. " Simple Technical Trading Rules and the Stochastic Properties of Stock Returns," Journal of Finance, American Finance Association, vol. 47(5), pages 1731-64, December.
  14. Alagidede, Paul, 2011. "Return behaviour in Africa's emerging equity markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 51(2), pages 133-140, May.
  15. Hsieh, David A, 1991. " Chaos and Nonlinear Dynamics: Application to Financial Markets," Journal of Finance, American Finance Association, vol. 46(5), pages 1839-77, December.
  16. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
  17. Gourishankar S Hiremath & Bandi Kamaiah, 2010. "Nonlinear Dependence in Stock Returns: Evidences from India," Journal of Quantitative Economics, The Indian Econometric Society, vol. 8(1), pages 69-85, January.
  18. Hoque, Hafiz A.A.B. & Kim, Jae H. & Pyun, Chong Soo, 2007. "A comparison of variance ratio tests of random walk: A case of Asian emerging stock markets," International Review of Economics & Finance, Elsevier, vol. 16(4), pages 488-502.
  19. Fama, Eugene F & French, Kenneth R, 1988. "Permanent and Temporary Components of Stock Prices," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 246-73, April.
  20. Chen, Shu-Heng & Yeh, Chia-Hsuan, 2002. "On the emergent properties of artificial stock markets: the efficient market hypothesis and the rational expectations hypothesis," Journal of Economic Behavior & Organization, Elsevier, vol. 49(2), pages 217-239, October.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Hiremath, Gourishankar S & Kumari, Jyoti, 2013. "Stock Returns Predictability and the Adaptive Market Hypothesis: Evidence from India," MPRA Paper 52581, University Library of Munich, Germany.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:finana:v:28:y:2013:i:c:p:130-142. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.