Market inefficiency is a latent concept, and it is difficult to be measured by means of a single indicator. In this paper, following both the adaptive market hypothesis (AMH) and the fractal market hypothesis (FMH), we develop a new time-varying measure of stock market inefficiency. The proposed measure, called composite efficiency index (CEI), is estimated as the synthesis of the most common efficiency measures such as the returns' autocorrelation, liquidity, volatility, and a new measure based on the Hurst exponent, called the Hurst efficiency index (HEI). To empirically validate the indicator, we compare different European stock markets in terms of efficiency over time.
A Composite Index for Measuring Stock Market Inefficiency
Mattera R.;
2022
Abstract
Market inefficiency is a latent concept, and it is difficult to be measured by means of a single indicator. In this paper, following both the adaptive market hypothesis (AMH) and the fractal market hypothesis (FMH), we develop a new time-varying measure of stock market inefficiency. The proposed measure, called composite efficiency index (CEI), is estimated as the synthesis of the most common efficiency measures such as the returns' autocorrelation, liquidity, volatility, and a new measure based on the Hurst exponent, called the Hurst efficiency index (HEI). To empirically validate the indicator, we compare different European stock markets in terms of efficiency over time.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
