Time-varying return predictability and adaptive markets hypothesis: Evidence on MIST countries from a novel wild bootstrap likelihood ratio approach

Abstract

This paper investigates the evolution of the return predictability (or market efficiency) degree for Mexico, Indonesia, South Korea, and Turkey (MIST) countries and examines whether the findings are consistent with the implications of adaptive markets hypothesis (AMH). For this purpose, the novel wild bootstrap likelihood ratio approach of Kim and Shamsuddin ( 2020) is applied on the monthly data from January 1993 to July 2020 with the rolling sub-sample windows method to determine whether the ability of inflation and trading volume to predict stock market returns varies over time. The empirical findings verify that the return predictability (or market efficiency) is time-varying consistent with the implications of the AMH for all MIST countries. This verification is also strengthened by using other predictor variables, namely, exchange rate and realized volatility. This paper reveals that the AMH is more successful in explaining real stock market behavior than efficient markets hypothesis.

The aggregate and sectoral time-varying market efficiency during crisis periods in Turkey: a comparative analysis with COVID-19 outbreak and the global financial crisis

“…Furthermore, Bozkuş and Kahyaoğlu ( 2020 ) demonstrated the validity of the heterogeneous market hypothesis, whereas Balcı et al ( 2022 ) demonstrated the validity of the fractal market hypothesis in Borsa Istanbul. Meanwhile, Mandacı et al ( 2019 ), Eyüboğlu and Eyüboğlu ( 2020 ), and Özkan ( 2020 ) and Burhan and Acar ( 2021 ) discovered that AMH holds true in the Turkish stock market. Mensi et al ( 2022 ) also examined the asymmetric multifractal structure of the markets during various crisis periods, such as the GFC and COVID-19, using the leading market indices of the Middle East and North Africa (MENA) stock markets, including Turkey.…”

Impact of major global events on the Turkish stock market efficiency

“…The efficiency of the Turkish Stock Market was investigated in detail through the studies conducted by Ozkan (2020aOzkan ( , 2020bOzkan ( , 2020cOzkan ( , 2021aOzkan ( , 2021b. Each of the studies focused on different set of markets and through varying tests and timeframes taken the results pointed the Turkish Stock Market having different efficiency levels which varied with time.…”