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On sectoral market efficiency

Author

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  • Villena, Marcelo J.
  • Araneda, Axel A.

Abstract

A multi-fractional Brownian approach is used to measure the level of sectoral market efficiency through the Hurst exponent, using S&P 500 and sectoral indices data between 2002 and 2022. Our results show that each sector has a particular level of market efficiency, and it cannot be statistically represented by the aggregate market efficiency. However, there are long and short-term relationships between the efficiency of each sector and the level of market efficiency, which tend to vary from one sector to another. Besides, during periods of crisis, market efficiency by sector decreases sharply, and the cross-correlation of efficiency between sectors tends to increase. On the other hand, during the bull periods, the market efficiency could be considered a good hypothesis for the different sectors.

Suggested Citation

  • Villena, Marcelo J. & Araneda, Axel A., 2024. "On sectoral market efficiency," Finance Research Letters, Elsevier, vol. 61(C).
    • Handle: RePEc:eee:finlet:v:61:y:2024:i:c:s1544612323013211
    DOI: 10.1016/j.frl.2023.104949
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    More about this item

    Keywords

    Efficient market hypothesis; Economic sectors; Financial risk; Multifractional Brownian motion;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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