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Testing capital market efficiency

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  • Christophe Boya

Abstract

This paper reviews the main tools to test the hypothesis of efficient market. We divide into two categories. First, we examine tests for return predictability. We expose random walk tests through variance ratios and the presence of long memory. Furthermore, we develop this part by including the imperfections of the market such as calendar anomalies and the trading volume. Then, we present event studies and different t tests employed in the field. We complete with the analysis of an information flow by presenting the non-parametric model and the test statistic. We also display empirical results from the literature for each category studied. Conclusions show that event studies question the efficiency contrary to tests for return predictability.

Suggested Citation

  • Christophe Boya, 2017. "Testing capital market efficiency," Global Business and Economics Review, Inderscience Enterprises Ltd, vol. 19(2), pages 194-224.
    • Handle: RePEc:ids:gbusec:v:19:y:2017:i:2:p:194-224
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    Cited by:

    1. Ihor Kendiukhov, 2024. "Present Value of the Future Consumer Goods Multiplier," Papers 2402.01938, arXiv.org.
    2. Svitlana Galeshchuk, 2017. "Technological bias at the exchange rate market," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 24(2-3), pages 80-86, April.
    3. Boya, Christophe M., 2019. "From efficient markets to adaptive markets: Evidence from the French stock exchange," Research in International Business and Finance, Elsevier, vol. 49(C), pages 156-165.

    More about this item

    Keywords

    efficient market hypothesis; return predictability tests; random walk hypothesis; event studies; abnormal returns; capital market efficiency; capital markets; variance ratios; long memory; calendar anomalies; trading volume; information flow.;
    All these keywords.

    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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