Measuring capital market efficiency: long-term memory, fractal dimension and approximate entropy

Abstract

We utilize long-term memory, fractal dimension and approximate entropy as input variables for the Efficiency Index [Kristoufek & Vosvrda (2013), Physica A 392]. This way, we are able to comment on stock market efficiency after controlling for different types of inefficiencies. Applying the methodology on 38 stock market indices across the world, we find that the most efficient markets are situated in the Eurozone (the Netherlands, France and Germany) and the least efficient ones in the Latin America (Venezuela and Chile). PACS. 05.10.-a Computational methods in statistical physics and nonlinear dynamics -05.45.-a Nonlinear dynamics and chaos -89.65.Gh Economics; econophysics, financial markets, business and management arXiv:1307.3060v3 [q-fin.ST]

Time-varying long term memory in the European Union stock markets

“…For recent studies, see Refs. [64][65][66][67][68][69][70]. efficiency with efficiency ratios below 30% at both 0.05 and 0.01 significance levels.…”

Has the 2008 financial crisis affected stock market efficiency? The case of Eurozone

“…The Hurst exponent has been used in several studies in the past as a tool for detecting long-range deviations from the random walk hypothesis in financial returns (e.g., Refs. [9][10][11][12][13][14][15][16][17][18][19]). To this extent, an important aspect of the utilized methodology is that, to avoid potential finite sample biases, the statistical significance of the estimated Hurst exponents is assessed by means of Monte-Carlo sampling [8,20].…”

Monitoring the informational efficiency of European corporate bond markets with dynamical permutation min-entropy

“…It is also worth mentioning 39 the Efficiency Index (EI), introduced by Kristoufek and Vosvrda, that incorporates long-term memory, fractal dimension and 40 entropy in a single measure [51-53]. Actually, it has been observed that the entropy measure has a stronger effect in the final 41 efficiency ranking when the EI is applied to different stock market indices across the world [52]. In the present study, a very 42 recently introduced entropy measure, namely the permutation min-entropy, is implemented for quantifying the market The aim of this paper is to analyze the time-varying informational efficiency and the impact of the 2008 financial crisis 4 on sectorial indices of European corporate bonds.…”