Abstract
In this article, the efficient market hypothesis (EMH) is tested for US and Indian stock markets and Indian American depositary receipts (ADRs) and their underlying stocks. The approach used to observe changing market efficiency is time-varying Hurst exponent. The Hurst values have been calculated after filtering the financial asset return series for short-term dependence and volatility. Rolling window approach has been used to calculate Hurst exponent and observe time-varying long-range dependence. The data are filtered by autoregressive-generalized autoregressive conditional heteroscedasticity (AR-GARCH) method. The empirical results suggest that US stock market is more efficient than Indian stock market. All the ADRs, their underlying stocks and markets of both the countries have shown varying efficiency. The change in efficiency of Indian ADRs is more when compared to their underlying stocks, which suggests that stock of a company listed on stock indices of different countries may show different pace of evolution of efficiency depending on maturity of the market.
Published Version
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