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Evidence of Adaptive Market Hypothesis in International Financial Markets

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  • Samuel Tabot ENOW

Abstract

Objective: Traditional finance emphasises market efficiency and inherent behavioural anomalies in investors. However, the emergence of the adaptive market hypothesis tends to suggest otherwise. The adaptive market hypothesis challenges market efficiency and behavioural finance by contesting that investors and market participants adapt to changing market environment. In essence, investors learn from their mistakes. The purpose of this study was to explore the concept of an adaptive market hypothesis in five international markets, namely, the JSE, CAC 40, NASDAQ, JPX-NIKKEI and DAX. Method: This study used a variance ratio test to explore the adaptive market hypothesis from January 2017 to April 2022. Results: the findings revealed the existence of adaptive markets in the CAC 40 and NASDAQ during the period under review. Conversely, there was no statistical evidence to support the adaptive concept in the JSE, JPX-NIKKEI, and the DAX. Originality/relevance: The implications of these findings is that investors in the CAC 40 and NASDAQ should consider active volatility scaling because of multiple betas, and hence fundamental analysis is worth the time. This study adds to the literature on adaptive markets hypothesis as well as market efficiency and behavioural finance. Keywords: Adaptive markets; market efficiency; behavioural finance; financial markets; variance ratio

Suggested Citation

  • Samuel Tabot ENOW, 2022. "Evidence of Adaptive Market Hypothesis in International Financial Markets," Journal of Academic Finance, RED research unit, university of Gabes, Tunisia, vol. 13(2), pages 48-55, December.
    • Handle: RePEc:jaf:journl:v:13:y:2022:i:2:n:462
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    References listed on IDEAS

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    1. Samuel Tabot Enow, 2021. "The Impact of Covid-19 on Market Efficiency: A Comparative Market Analysis," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 9(4), pages 235-244.
    2. Scherf, Matthias & Matschke, Xenia & Rieger, Marc Oliver, 2022. "Stock market reactions to COVID-19 lockdown: A global analysis," Finance Research Letters, Elsevier, vol. 45(C).
    3. Urquhart, Andrew & McGroarty, Frank, 2016. "Are stock markets really efficient? Evidence of the adaptive market hypothesis," International Review of Financial Analysis, Elsevier, vol. 47(C), pages 39-49.
    4. Samuel Tabot Enow, 2022. "Overreaction And Underreaction During The Covid-19 Pandemic In The South African Stock Market And Its Implications," Eurasian Journal of Business and Management, Eurasian Publications, vol. 10(1), pages 19-26.
    5. Jin, Chenglu & Lu, Xingyu & Zhang, Yihan, 2022. "Market reaction, COVID-19 pandemic and return distribution," Finance Research Letters, Elsevier, vol. 47(PB).
    6. Ali Fayyaz Munir & Mohd Edil Abd. Sukor & Shahrin Saaid Shaharuddin, 2022. "Adaptive Market Hypothesis and Time-varying Contrarian Effect: Evidence From Emerging Stock Markets of South Asia," SAGE Open, , vol. 12(1), pages 21582440211, January.
    7. Noemi Schmitt & Frank Westerhoff, 2017. "Herding behaviour and volatility clustering in financial markets," Quantitative Finance, Taylor & Francis Journals, vol. 17(8), pages 1187-1203, August.
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    Cited by:

    1. Samuel Tabot ENOW, 2023. "A Non-linear Dependency Test for Market Efficiency: Evidence from International Stock Markets," Journal of Economics and Financial Analysis, Tripal Publishing House, vol. 7(1), pages 1-12.

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    More about this item

    Keywords

    Adaptive markets; market efficiency; Behavioural finance; Variance ratio; Marchés adaptatifs; efficacité du marché; finance comportementale; Marchés financiers; rapport de variance;
    All these keywords.

    JEL classification:

    • M1 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration
    • N8 - Economic History - - Micro-Business History
    • G3 - Financial Economics - - Corporate Finance and Governance

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