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Investigation of Efficient Market Hypothesis and Adaptive Market Hypothesis on Stock Markets of E7 Countries

Author

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  • Büşra GÖRGEL
  • Ä°lhan EGE

Abstract

In the present study, which aims to investigate the validity of the Efficient Market Hypothesis (EMH) and the Adaptive Market Hypothesis (AMH) in the equity markets of E7 countries, weekly data between 12.10.1997 and 04.02.2024 are used. In order to determine whether EMH and AMH are valid, the data set is divided into four different sub-periods as P1, P2, P3, P4. In order to test the variability of the predictability of prices in the equity markets of E7 countries during the analysis period, standard and structural break unit root tests such as ADF, PP and Zivot Andrews test, variance ratio test, BDS test, AR-MA model, autocorrelation and ARCH-LM changing variance test were used. The findings obtained from the Jarque-Bera (J-B) normality test indicate that there is no efficiency in China, Brazil, Mexico, Indonesia, Russia and Turkey equity markets in all periods, that is, the Efficient Market Hypothesis (EMH) and APH are not valid, but APH is valid in the Indian equity market. According to both ADF, PP and Zivot Andrews unit root tests, the return series of the equity markets of the E7 countries are stationary in all periods and the EMH and AMH are not valid. The results of the variance ratio test are similar to the results of the unit root test and according to this test, EMH and AMH are not valid in the equity markets of the countries. The BDS test reveals that EMH and AMH are not valid in the equity markets of China, India, Mexico, Indonesia, Russia and Turkey, while AMH is valid in Brazil. According to the results of the ARMA model, EMH and AMH are not valid for all periods, and finally, the autocorrelation and ARCH-LM changing variance tests show that the efficiency changes over the periods and therefore AMH is valid in the equity markets of E7 countries. When the results of the analysis are evaluated, it is possible to say that AMH is more successful than EMH in explaining the behaviour of the equity markets of E7 countries.

Suggested Citation

  • Büşra GÖRGEL & Ä°lhan EGE, 2024. "Investigation of Efficient Market Hypothesis and Adaptive Market Hypothesis on Stock Markets of E7 Countries," Fiscaoeconomia, Tubitak Ulakbim JournalPark (Dergipark), issue 3.
    • Handle: RePEc:fis:journl:240320
    DOI: 10.25295/fsecon.1448436
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    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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