Work

The evolution of stock market efficiency in the US: a non-Bayesian time-varying model approach

Year: 2015

Type: article

Abstract: A non-Bayesian time-varying model is developed by introducing the concept of the degree of market efficiency that varies over time. This model may be seen as a reflection of the idea that continuous technological progress alters the trading environment over time. With new methodologies and a new measure of the degree of market efficiency, we examine whether the US stock market evolves over time. In particular, a time-varying autoregressive (TV-AR) model is employed. Our main findings are: (i) the US stock market has evolved over time and the degree of market efficiency has cyclical fluctuations with a considerably long periodicity, from 30 to 40 years; and (ii) the US stock market has been efficient with the exception of four times in our sample period: during the long recession of 1873–1879; the recession of 1902–1904; the New Deal era; and the recession of 1957–1958 and soon after it. It is then shown that our results are partly consistent with the view of behavioural finance.

Source: Applied Economics

DOI: 10.1080/00036846.2015.1083532

Authors: Mikio Ito, Akihiko Noda, Tatsuma Wada

Institutions: Keio University, Kyoto Sangyo University, Keio University Shonan Fujisawa

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

Funder: Japan Society for the Promotion of Science

Awards: A Study on Time-Varying Structure of Market Integration and Market Efficiency in Modern Period: The Case of Rice Markets in Japan and Colonized Korea, Measuring the Time-Varying Efficiency and Market Linkages in Modern Japanese Rice Markets, A Study for the Time-Varying Structure of Foreign Exchange Markets using Non-Bayesian Time-Varying Econometric Models