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The Evolution of Market Efficiency: 103 Years Daily Data of the Dow

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  • Gu, Anthony Yanxiang
  • Finnerty, Joseph

Abstract

Autocorrelation in daily returns of the Dow 30 Index fluctuates significantly over time and reveals a declining trend after World War II. The relation between autocorrelation and volatility is negative and nonlinear. The relation between autocorrelation and volume is also negative and nonlinear. Returns exhibit positive autocorrelation during years with higher autocorrelation, and negative autocorrelation during years with lower autocorrelation. Positive autocorrelation appears more frequently during periods of low volatility, while negative autocorrelation appears more frequently during periods of high volatility. Current period's autocorrelation is related to previous period's autocorrelation and to both the previous and the current period's volatility and rate of return, which implies that investors incorporate previous period's pattern of market behavior into their trading strategy. Copyright 2002 by Kluwer Academic Publishers

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Bibliographic Info

Article provided by Springer in its journal Review of Quantitative Finance and Accounting.

Volume (Year): 18 (2002)
Issue (Month): 3 (May)
Pages: 219-37

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Handle: RePEc:kap:rqfnac:v:18:y:2002:i:3:p:219-37

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Web page: http://springerlink.metapress.com/link.asp?id=102990

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Cited by:
  1. Lo, Melody & Lee, Cheng-Few, 2006. "A reexamination of the market efficiency hypothesis: Evidence from an electronic intra-day, inter-dealer FX market," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(4), pages 565-585, September.
  2. Kwang-il Choe & Joshua Krausz & Kiseok Nam, 2011. "Technical trading rules for nonlinear dynamics of stock returns: evidence from the G-7 stock markets," Review of Quantitative Finance and Accounting, Springer, vol. 36(3), pages 323-353, April.
  3. Gu, Anthony Yanxiang, 2003. "The declining January effect: evidences from the U.S. equity markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 43(2), pages 395-404.
  4. Abul Shamsuddin & Jae H Kim, 2009. "Short-Horizon Return Predictability in International Equity Markets," Working Papers 2009.01, School of Economics, La Trobe University.
  5. 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.
  6. Anthony Gu, 2004. "The Reversing Weekend Effect: Evidence from the U.S. Equity Markets," Review of Quantitative Finance and Accounting, Springer, vol. 22(1), pages 5-14, January.

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