Unaccounted forms of complexity: A path away from the efficient market hypothesis paradigm

One of the highly controversial issues in the area of finance is “Efficient Market Hypothesis”. Efficient Market Hypothesis states that, “In an efficient market, all available price information is reflected in the stock prices and it is not possible to generate abnormal returns compared to other investors.” A lot of studies conducted previouslyto test the Efficient Market Hypothesis, confirmed the theory until recent years, when some academicians found it to be non-applicable in financial markets. According to them, it is possible to forecast the stock price movements using Technical Analysis. The results of various studies have been inconclusive and indefinite about the issue. This study attempted to test the efficiency of FMCG Sector stocks in India in its weak form. For the study, closing prices of top 10 stocks from Nifty FMCG index has been taken for the 5-year period ranging from 1st October 2014 to 30th September 2019. Wald-Wolfowitz Run test has been used to test the haphazard movements in the stock price movements. The results indicated that FMCG sector stocks does support the Efficient Market Hypothesis and exhibit efficiency in its weak form. Hence, it is not possible to accurately predict the price movements of these stocks.

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Non-Linearity and Chaotic Behaviour in Cyprus Stock Market

International Journal of Financial Management ◽

10.21863/ijfm/2015.5.4.018 ◽

2015 ◽

Vol 5 (4) ◽

Author(s):

Athina Bougioukou

Keyword(s):

Lyapunov Exponent ◽

Stock Market ◽

Chaos Theory ◽

Linear Dependence ◽

Chaotic Behavior ◽

Efficient Market Hypothesis ◽

Chaotic Behaviour ◽

Maximum Lyapunov Exponent ◽

Efficient Market ◽

General Index

The intention of this research is to investigate the aspect of non-linearity and chaotic behavior of the Cyprus stock market. For this purpose, we use non-linearity and chaos theory. We perform BDS, Hinich-Bispectral tests and compute Lyapunov exponent of the Cyprus General index. The results show that existence of non-linear dependence and chaotic features as the maximum Lyapunov exponent was found to be positive. This study is important because chaos and efficient market hypothesis are mutually exclusive aspects. The efficient market hypothesis which requires returns to be independent and identically distributed (i.i.d.) cannot be accepted.

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The Peter Principle and the Efficient Market Hypothesis

Financial Analysts Journal ◽

10.2469/faj.v35.n6.72 ◽

1979 ◽

Vol 35 (6) ◽

pp. 72-75 ◽

Cited By ~ 1

Author(s):

Herbert G. Grubel

Keyword(s):

Efficient Market Hypothesis ◽

Efficient Market ◽

Peter Principle

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Robust Approach to Verifying the Weak Form of the Efficient Market Hypothesis

10.1063/1.3636754 ◽

2011 ◽

Author(s):

Luboš Střelec ◽

Theodore E. Simos ◽

George Psihoyios ◽

Ch. Tsitouras ◽

Zacharias Anastassi

Keyword(s):

Weak Form ◽

Efficient Market Hypothesis ◽

Efficient Market ◽

Robust Approach

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Nonlinearities and Chaos: A New Analysis of CEE Stock Markets

Mathematics ◽

10.3390/math9070707 ◽

2021 ◽

Vol 9 (7) ◽

pp. 707

Author(s):

Claudiu Tiberiu Albulescu ◽

Aviral Kumar Tiwari ◽

Phouphet Kyophilavong

Keyword(s):

Capital Markets ◽

Stock Markets ◽

Transition Period ◽

Chaotic Behavior ◽

Efficient Market Hypothesis ◽

Eastern European ◽

Price Behavior ◽

Financial Systems ◽

Efficient Market ◽

Level Of Significance

After a long transition period, the Central and Eastern European (CEE) capital markets have consolidated their place in the financial systems. However, little is known about the price behavior and efficiency of these markets. In this context, using a battery of tests for nonlinear and chaotic behavior, we look for the presence of nonlinearities and chaos in five CEE stock markets. We document, in general, the presence of nonlinearities and chaos which questions the efficient market hypothesis. However, if all tests highlight a chaotic behavior for the analyzed index returns, there are noteworthy differences between the analyzed stock markets underlined by nonlinearity tests, which question, thus, their level of significance. Moreover, the results of nonlinearity tests partially contrast the previous findings reported in the literature on the same group of stock markets, showing, thus, a change in their recent behavior, compared with the 1990s.

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Testing the weak form of efficient market hypothesis for socially responsible and Shariah indexes in the USA

Journal of Islamic Accounting and Business Research ◽

10.1108/jiabr-02-2020-0055 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Abbas Khan ◽

Muhammad Yar Khan ◽

Abdul Qayyum Khan ◽

Majid Jamal Khan ◽

Zia Ur Rahman

Keyword(s):

Stock Prices ◽

Arima Model ◽

Weak Form ◽

Efficient Market Hypothesis ◽

Future Price ◽

Short Term ◽

Socially Responsible ◽

Efficient Market ◽

Content Type ◽

The Us

Purpose By testing the weak form of efficient market hypothesis (EMH) this study aims to forecast the short-term stock prices of the US Dow and Jones environmental socially responsible index (SRI) and Shariah compliance index (SCI). Design/methodology/approach This study checks the validity of the weak form of EMH for both SCI and SRI prices by using different parametric and non-parametric tests, i.e. augmented Dickey-Fuller test, Philip-Perron test, runs test and variance ratio test. If the EMH is invalid, the research further forecasts short-term stock prices by applying autoregressive integrated moving average (ARIMA) model using daily price data from 2010 to 2018. Findings The research confirms that a weak form of EMH is not valid in the US SRI and SCI. The historical data can predict short-term future price movements by using technical ARIMA model. Research limitations/implications This study provides better guidance to risk-averse national and international investors to earn higher returns in the US SRI and SCI. This study can be extended to test the EMH of Islamic equity in the Middle East and North Africa region and other top Islamic indexes in the world. Originality/value This study is a new addition to the existing literature of equity investment and price forecasting by comparing and investigating the market efficiency of two interrelated US SRI and SCI.

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