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Measuring capital market efficiency: Global and local correlations structure

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  • Ladislav Kristoufek
  • Miloslav Vosvrda

Abstract

We introduce a new measure for the capital market efficiency. The measure takes into consideration the correlation structure of the returns (long-term and short-term memory) and local herding behavior (fractal dimension). The efficiency measure is taken as a distance from an ideal efficient market situation. Methodology is applied to a portfolio of 41 stock indices. We find that the Japanese NIKKEI is the most efficient market. From geographical point of view, the more efficient markets are dominated by the European stock indices and the less efficient markets cover mainly Latin America, Asia and Oceania. The inefficiency is mainly driven by a local herding, i.e. a low fractal dimension.

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File URL: http://arxiv.org/pdf/1208.1298
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Paper provided by arXiv.org in its series Papers with number 1208.1298.

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Date of creation: Aug 2012
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Publication status: Published in Physica A 392(1), pp. 184-193, 2013
Handle: RePEc:arx:papers:1208.1298

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Citations

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Cited by:
  1. Ladislav Kristoufek & Miloslav Vosvrda, 2013. "Measuring capital market efficiency: Long-term memory, fractal dimension and approximate entropy," Papers 1307.3060, arXiv.org, revised May 2014.
  2. Rui Pascoal & Ana Margarida Monteiro, 2013. "Market Efficiency, Roughness and Long Memory in the PSI20 Index Returns: Wavelet and Entropy Analysis," GEMF Working Papers 2013-27, GEMF - Faculdade de Economia, Universidade de Coimbra.
  3. Kristoufek, Ladislav & Vosvrda, Miloslav, 2014. "Commodity futures and market efficiency," Energy Economics, Elsevier, Elsevier, vol. 42(C), pages 50-57.
  4. Todea, Alexandru & PleÅŸoianu, Anita, 2013. "The influence of foreign portfolio investment on informational efficiency: Empirical evidence from Central and Eastern European stock markets," Economic Modelling, Elsevier, Elsevier, vol. 33(C), pages 34-41.

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