Are European equity markets efficient? New evidence from fractal analysis

Onali, Enrico and Goddard, John (2011). Are European equity markets efficient? New evidence from fractal analysis. International Review of Financial Analysis, 20 (2), pp. 59-67.

Abstract

We report an empirical analysis of long-range dependence in the returns of eight stock market indices, using the Rescaled Range Analysis (RRA) to estimate the Hurst exponent. Monte Carlo and bootstrap simulations are used to construct critical values for the null hypothesis of no long-range dependence. The issue of disentangling short-range and long-range dependence is examined. Pre-filtering by fitting a (short-range) autoregressive model eliminates part of the long-range dependence when the latter is present, while failure to pre-filter leaves open the possibility of conflating short-range and long-range dependence. There is a strong evidence of long-range dependence for the small central European Czech stock market index PX-glob, and a weaker evidence for two smaller western European stock market indices, MSE (Spain) and SWX (Switzerland). There is little or no evidence of long-range dependence for the other five indices, including those with the largest capitalizations among those considered, DJIA (US) and FTSE350 (UK). These results are generally consistent with prior expectations concerning the relative efficiency of the stock markets examined.

Publication DOI: https://doi.org/10.1016/j.irfa.2011.02.004
Divisions: Aston Business School
Additional Information: © 2011, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/
Uncontrolled Keywords: fractal analysis,market efficiency,random walk hypothesis,Economics and Econometrics,Finance
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Related URLs: http://www.scop ... tnerID=8YFLogxK (Scopus URL)
Published Date: 2011-04
Authors: Onali, Enrico ( 0000-0003-3723-2078)
Goddard, John

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