The Evolution of Market Efficiency and Its Periodicity: A Non-Bayesian Time-Varying Model Approach
AbstractA 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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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1202.0100.
Date of creation: Feb 2012
Date of revision: Mar 2013
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Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-02-15 (All new papers)
- NEP-CWA-2012-02-15 (Central & Western Asia)
- NEP-ETS-2012-02-15 (Econometric Time Series)
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