Does the Adaptive Market Hypothesis explain the evolution of emerging markets efficiency? Evidence from the Moroccan financial market

Abstract

This paper scrutinizes different aspects of the Adaptive Market Hypothesis (AMH) in the Moroccan financial market over the period from January 1992 to September 2019 through different approaches. On the basis of daily returns on MASI index, we measure the evolution of efficiency degree based on the linear and nonlinear tests with rolling window. One of the practical implications of the AMH is that the profit opportunities arise from time to time depending on the degree of market efficiency and according to market conditions. To investigate this implication, we track the evolving performance of momentum-based trading strategies and the extent to which this performance is related to the market efficiency degree and certain market conditions. The linear and nonlinear tests reveal that the efficiency degree is time-varying. Moreover, we find via momentum test that profit opportunities appear from time to time and disappear once they are exploited. Interestingly, the momentum profits depend on both the degree of market efficiency and some market conditions. Thus, the investors can capitalize on the inefficiency and certain market conditions using trading strategies such momentum. Overall, our findings are consistent with the AMH framework, which is proved to be a better explanation of the behavior of emerging markets than the Efficiency Market Hypothesis (EMH).