The Evolution of Stock Market Efficiency in the US: A Non-Bayesian Time-Varying Model Approach
Abstract
A non-Bayesian time-varying model is developed by introducing the concept of the degree of market efficiency that varies over time. This model may be seen as a reflection of the idea that continuous technological progress alters the trading environment over time. With new methodologies and a new measure of the degree of market efficiency, we examine whether the US stock market evolves over time. In particular, a time-varying autoregressive (TV-AR) model is employed. Our main findings are: (i) the US stock market has evolved over time and the degree of market efficiency has cyclical fluctuations with a considerably long periodicity, from 30 to 40 years; and (ii) the US stock market has been efficient with the exception of four times in our sample period: during the long-recession of 1873-1879; the recession of 1902-1904; the New Deal era; and the recession of 1957-1958 and soon after it. It is then shown that our results are partly consistent with the view of behavioral finance.
Keywords
Cite
@article{arxiv.1202.0100,
title = {The Evolution of Stock Market Efficiency in the US: A Non-Bayesian Time-Varying Model Approach},
author = {Mikio Ito and Akihiko Noda and Tatsuma Wada},
journal= {arXiv preprint arXiv:1202.0100},
year = {2016}
}
Comments
28 pages, 7 figures, 2 tables in Applied Economics, 2015