Stock market efficiency the evidence from FTA indices of eleven major stock markets

Purpose – The purpose of this paper is to examine the informational efficiency and integration simultaneously for select Asian and US stock markets while considering the impact of recent financial crisis. Design/methodology/approach – Daily stock market data from 13 world markets covering the period of ten years (from January 1, 2000 to December 31, 2010) is tested using Run test, Unit root test, GARCH(1, 1) model, Pearson correlation coefficient, Johansen’s cointegration test and Granger causality test. Findings – It is concluded that the markets under study are inefficient in weak form which creates the chances of earning abnormal returns for the investors. Furthermore, the markets are found to be correlated and integrated in long-run, which makes the international fund diversification insignificant. The degree of inefficiency, in general, is not affected by the recent financial crisis but the level of integration among stock markets is reduced with the effect of recent financial crisis. Practical implications – Individual/institutional investors, portfolio managers, corporate executives, policy makers and practitioners may draw meaningful conclusions from the findings of this type of researches while operating in stock markets. They can use such studies for the management of their existing portfolios as their portfolio management strategies may be, up to some extent, dependent upon such research work. Originality/value – The originality of the present study lies in the fact that this paper is an attempt to fill the time gap of comprehensive researches on Asian and US markets and an effort to test stock market efficiency and integration simultaneously.

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Collective dynamics of stock market efficiency

Scientific Reports ◽

10.1038/s41598-020-78707-2 ◽

2020 ◽

Vol 10 (1) ◽

Author(s):

Luiz G. A. Alves ◽

Higor Y. D. Sigaki ◽

Matjaž Perc ◽

Haroldo V. Ribeiro

Keyword(s):

Stock Market ◽

Market Efficiency ◽

Stock Prices ◽

Stock Markets ◽

Time Windows ◽

Efficient Market Hypothesis ◽

Permutation Entropy ◽

Informational Efficiency ◽

Stock Market Efficiency ◽

High Level

AbstractSummarized by the efficient market hypothesis, the idea that stock prices fully reflect all available information is always confronted with the behavior of real-world markets. While there is plenty of evidence indicating and quantifying the efficiency of stock markets, most studies assume this efficiency to be constant over time so that its dynamical and collective aspects remain poorly understood. Here we define the time-varying efficiency of stock markets by calculating the permutation entropy within sliding time-windows of log-returns of stock market indices. We show that major world stock markets can be hierarchically classified into several groups that display similar long-term efficiency profiles. However, we also show that efficiency ranks and clusters of markets with similar trends are only stable for a few months at a time. We thus propose a network representation of stock markets that aggregates their short-term efficiency patterns into a global and coherent picture. We find this financial network to be strongly entangled while also having a modular structure that consists of two distinct groups of stock markets. Our results suggest that stock market efficiency is a collective phenomenon that can drive its operation at a high level of informational efficiency, but also places the entire system under risk of failure.

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