Abstract
This study separately applies Lo MacKinlay traditional variance ratio test, Wright non-parametric test, Chow Denning multiple variance ratio test and Joint Wright multiple variance ratio test to analyze and test the features of the EU carbon emission market and the results show that: in the 12-year development of the EU carbon emission trading, only the rate of return in the second stage follows the Martingale Process, showing a weak-form efficient market, while the first and third stages fail to possess features of an efficient market.
Highlights
The Efficient Markets Hypothesis (EMH) is the basis of modern finance theory
This study separately applies Lo MacKinlay traditional variance ratio test, Wright non-parametric test, Chow Denning multiple variance ratio test and Joint Wright multiple variance ratio test to analyze and test the features of the EU carbon emission market and the results show that: in the 12-year development of the EU carbon emission trading, only the rate of return in the second stage follows the Martingale Process, showing a weak-form efficient market, while the first and third stages fail to possess features of an efficient market
Eugene Fama [1] defined an Efficient Market as: when the market price can at any time fully reflect all available information, investors will not be able to obtain excess profits from their investment strategies and the price of each bond will always equal to the value of investment, and as such, the capital market is efficient
Summary
Eugene Fama [1] defined an Efficient Market as: when the market price can at any time fully reflect all available information, investors will not be able to obtain excess profits from their investment strategies and the price of each bond will always equal to the value of investment, and as such, the capital market is efficient. In order to make the “fully reflect” specific and to test market efficiency empirically, Fama divided efficient markets into three categories: weak-form efficient market, semi-strong-form efficient market and strong-form efficient market. In a weak-form efficient market, historical information can be fully reflected by the market price; in a semi-strong-form efficient market, the price can fully reflect historical information and public information; while in a strong-form efficient market, the price can adequately reflect historical information, public information and internal information.
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