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The Evolution of Market Efficiency and Its Periodicity: A Non-Bayesian Time-Varying Model Approach

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  • Mikio Ito
  • Akihiko Noda
  • Tatsuma Wada

Abstract

A Non-Bayesian time-varying model is developed by introducing the concept of the degree of market efficiency that varies over time. With new methodologies and a new measure of the degree of market efficiency, we examine whether the U.S. stock market evolves over time. In particular, a time-varying autoregressive (AR) model is employed. Our main findings are: (i) the U.S. stock market has evolved over time and the degree of market efficiency has cyclical fluctuations with a considerably long periodicity, from 30 to 40 years; and (ii) the U.S. stock market has been efficient with the exception of four times in our sample period: during the long-recession of 1873-1879; the recession of 1902-1904; the New Deal era; and the recession of 1957-1958 and soon after it.

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File URL: http://arxiv.org/pdf/1202.0100
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Bibliographic Info

Paper provided by arXiv.org in its series Papers with number 1202.0100.

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Date of creation: Feb 2012
Date of revision: Mar 2013
Handle: RePEc:arx:papers:1202.0100

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Web page: http://arxiv.org/

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