Market efficiency and the global financial crisis: evidence from developed markets
Studies in Economics and Finance
ISSN: 1086-7376
Article publication date: 7 June 2018
Issue publication date: 16 August 2018
Abstract
Purpose
This study aims to provide one of the first empirical investigations of market efficiency for developed markets during the recent global financial crisis.
Design/methodology/approach
Using the Morgan Stanley Capital International (MSCI) country indices as proxies for national stock markets, the study conducts a battery of econometric tests in assessing weak-form market efficiency for the developed markets.
Findings
The inferential outcomes are consistent among the different tests. Specifically, the study finds that the majority of developed markets are weak-form efficient while the USA is the sole equity market to be commonly diagnosed as weak-form inefficient across the different tests when using full period data spanning the January 2008-November 2011 period. However, when basing the analysis on one-year subsamples over the identical time period, this study fails to reject weak-form market efficiency for all of the developed markets and presents evidence consistent with the Adaptive Market Hypothesis as described by Urquhart and Hudson (2013). When applying technical analysis for the case of the USA over the full study period, the results indicate that the return predictabilities can be exploited for some horizon of variable length moving average (VMA) trading rules.
Originality/value
This study provides one of the first empirical investigations of market efficiency for developed markets during the recent global financial crisis using an extended set of econometric tests. The study contributes to the existing body of empirical research that formally assesses the impact of a financial crisis on stock market efficiency and underlines the significance and relevance of examining market efficiency through subsample analysis.
Keywords
Acknowledgements
The authors would like to thank seminar participants at the University of Dayton for useful comments and discussions. The authors would also like to thank Jing Li for excellent research assistance. The authors are grateful for useful comments and suggestions provided by the anonymous referees.
Citation
Sabbaghi, O. and Sabbaghi, N. (2018), "Market efficiency and the global financial crisis: evidence from developed markets", Studies in Economics and Finance, Vol. 35 No. 3, pp. 362-385. https://doi.org/10.1108/SEF-01-2014-0022
Publisher
:Emerald Publishing Limited
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