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The importance of using a test of weak-form market efficiency that does not require investigating the data first

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  • Aumeboonsuke, Vesarach
  • Dryver, Arthur L.

Abstract

Are financial markets efficient? There are multiple tests for answering this question. Forming a hypothesis and testing should be done before looking at the data, i.e. without data snooping. However, the parameters used in the tests of the efficient market hypothesis are often not decided independent of the data. This paper investigates the consequences of not only this form of data snooping but also the issue of looking at multiple tests. The specific tests compared in this paper are the runs test, the autocorrelation test, and the variance ratio test.

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  • Aumeboonsuke, Vesarach & Dryver, Arthur L., 2014. "The importance of using a test of weak-form market efficiency that does not require investigating the data first," International Review of Economics & Finance, Elsevier, vol. 33(C), pages 350-357.
    • Handle: RePEc:eee:reveco:v:33:y:2014:i:c:p:350-357
    DOI: 10.1016/j.iref.2014.02.009
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    Cited by:

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    2. Syeda Tayyaba Ijaz & Rabia Komal, 2015. "Role Of Hurst Exponent In Prediction Of Market Efficiency In Kse-100 Index," IBT Journal of Business Studies (JBS), Ilma University, Faculty of Management Science, vol. 11(2), pages 41-54.
    3. Mensi, Walid & Tiwari, Aviral Kumar & Al-Yahyaee, Khamis Hamed, 2019. "An analysis of the weak form efficiency, multifractality and long memory of global, regional and European stock markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 72(C), pages 168-177.
    4. Mr. M. Awais Mehmood & Dr. Faisal Aftab & Dr. Hafiz Mushtaq, 2016. "Role Of Social Media Marketing (Smm) In Hei’S Admission," IBT Journal of Business Studies (JBS), Ilma University, Faculty of Management Science, vol. 12(1), pages 12-10.
    5. Syeda Tayyaba Ijaz & Rabia Komal, 2015. "Role Of Hurst Exponent In Prediction Of Market Efficiency In Kse-100 Index," IBT Journal of Business Studies (JBS), Ilma University, Faculty of Management Science, vol. 11(2), pages 11-14.
    6. Katusiime, Lorna & Shamsuddin, Abul & Agbola, Frank W., 2015. "Foreign exchange market efficiency and profitability of trading rules: Evidence from a developing country," International Review of Economics & Finance, Elsevier, vol. 35(C), pages 315-332.

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    More about this item

    Keywords

    Autocorrelation test; Data snooping; Market efficiency; Runs test; Variance ratio test;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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