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The semi-strong efficiency debate: In search of a new testing framework

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  • Ziliotto, Arianna
  • Serati, Massimiliano

Abstract

This work presents an innovative framework to test for semi-strong market efficiency, with a special focus on price reactions to macroeconomic impulses. More precisely, daily market observation and empirical practice both support the view that significant deviations from equilibrium (i.e. inefficiencies) are likely to emerge under suitable volatility conditions and modelling some prior information leakages from big institutional players, so that focusing exclusively on return distribution and profit opportunities alone seems to lead only to remarkable distortions in the final results. The presented testing framework also minimizes the required initial assumptions to a very small set of conjectures, that are quite descriptive of financial market behaviours, while eliminating all needs for unrealistic market characterizations. This original methodology finally allows to test for efficiency only when the null hypothesis makes some economic sense, thus further reducing potential biases in the final outcomes.

Suggested Citation

  • Ziliotto, Arianna & Serati, Massimiliano, 2015. "The semi-strong efficiency debate: In search of a new testing framework," Research in International Business and Finance, Elsevier, vol. 34(C), pages 412-438.
    • Handle: RePEc:eee:riibaf:v:34:y:2015:i:c:p:412-438
    DOI: 10.1016/j.ribaf.2015.03.002
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