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

Mikio Itou, Akihiko Noda, Tatsuma Wada

Research output: Contribution to journalArticle

25 Citations (Scopus)

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.

Original languageEnglish
JournalApplied Economics
DOIs
Publication statusAccepted/In press - 2015 Sep 10

Keywords

  • degree of market efficiency
  • Market efficiency
  • non-Bayesian time-varying AR model
  • the adaptive market hypothesis

ASJC Scopus subject areas

  • Economics and Econometrics

Fingerprint Dive into the research topics of 'The evolution of stock market efficiency in the US: a non-Bayesian time-varying model approach'. Together they form a unique fingerprint.

  • Cite this