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A multidimensional classification of market anomalies: Evidence from 76 price indices

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  • Doyle, John R.
  • Chen, Catherine Huirong
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    Abstract

    This paper makes the first attempt to present explicit empirical evidence that market inefficiency can be multi-dimensional. Testing the Efficient Market Hypothesis (EMH) over 76 stock indices using 17 best established indicators (e.g. runs test), we show that most indices exhibit some type(s) of anomaly and that indicators differ from each other in terms of statistical power and/or the type of anomaly detected. A principal components analysis (PCA) demonstrates that indicators group along orthogonal dimensions, and hence a market can exhibit short-term memory, long-term memory and/or calendar effects, which are all distinct sources of possible inefficiency. This research presents statistical evidence on the extent and nature of market inefficiency, offers possible explanations for conflicting previous findings, and provides new insights into studying market efficiency.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of International Financial Markets, Institutions and Money.

    Volume (Year): 22 (2012)
    Issue (Month): 5 ()
    Pages: 1237-1257

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    Handle: RePEc:eee:intfin:v:22:y:2012:i:5:p:1237-1257

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    Web page: http://www.elsevier.com/locate/intfin

    Related research

    Keywords: Market efficiency; EMH; Stock indices; Statistical tests; Multi-dimensional;

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    Cited by:
    1. Doyle, John R. & Chen, Catherine H., 2013. "Patterns in stock market movements tested as random number generators," European Journal of Operational Research, Elsevier, vol. 227(1), pages 122-132.

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