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The Adaptive Market Hypothesis and the Day-of-the-Week Effect in African Stock Markets: the Markov Switching Model

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  • Obalade Adefemi A.

    (School of Accounting, Economics & Finance, University of KwaZulu-NatalDurban, South Africa, Assistant Lecturer at Ekiti State University, Ado-Ekiti, Nigeria)

  • Muzindutsi Paul-Francois

    (Ph.D., Associate Professor, School of Accounting, Economics & Finance, University of KwaZulu-Natal, Durban, South Africa)

Abstract

In line with the Adaptive Market Hypothesis (AMH), the objective of this study is to investigate how the day-of-the-week (DOW) effect behaves under different bull and bear market conditions in African stock markets, and to examine the likelihood of being in a bull or bear regime for each market. A Markov Switching Model (MSM) was employed as the analytical technique. The results show that the DOW effect appears in one regime and disappears in another, in all markets, as rooted in the AMH. Lastly, all markets, except the Johannesburg Stock Exchange have a higher tendency to be in a bearish state than a bullish one. Our findings show that active investment management may yield profits for investors investing in most African markets during bearish conditions.

Suggested Citation

  • Obalade Adefemi A. & Muzindutsi Paul-Francois, 2019. "The Adaptive Market Hypothesis and the Day-of-the-Week Effect in African Stock Markets: the Markov Switching Model," Comparative Economic Research, Sciendo, vol. 22(3), pages 145-162, September.
    • Handle: RePEc:vrs:coecre:v:22:y:2019:i:3:p:145-162:n:9
    DOI: 10.2478/cer-2019-0028
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    References listed on IDEAS

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    1. Obalade Adefemi A. & Muzindutsi Paul-Francois, 2019. "Calendar Anomalies, Market Regimes, and the Adaptive Market Hypothesis in African Stock Markets," Journal of Management and Business Administration. Central Europe, Sciendo, vol. 27(4), pages 71-94, December.

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    More about this item

    Keywords

    calendar effect; AMH; African stock markets; Markov Switching Model;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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