Evidence that financial markets are efficient sometimes and inefficient most of the times
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Issue Date
2016
Editor
Authors
Fahmy, Hany
License
Subject
Financial market
Market efficiency
Market efficiency
Abstract
The issue of market efficiency attracted the attention of academicians since the existence of financial markets. Over time, two schools
of thoughts were established: the efficient markets school and the
behavioral finance school. Proponents of the former believed in the
Efficient Markets Hypothesis whereas the latter brought evidence from
psychology neurosciences to demonstrate the irrationality of investors
in making financial decisions. Recently, an adaptive hypothesis was
suggested. This paper proves mathematically the existence of this
adaptability process and tests empirically its validity. The results
support the adaptability process, namely that markets are indeed efficient sometimes and inefficient most of the time.
Keywords: Efficient Markets Hypothesis, Behavioral Finance, Adaptive Markets Hypothesis, Smooth transition regression models, Threshold models, regime switching models, Financial Markets, Irrationality,
S&P500, Market-to-Book ratio.
Description
This work is licensed under a Creative Commons Attribution-NoDerivatives 4.0 International License.