Automatic Variance Ratio Research Articles

Does speculation impair informational efficiency? New evidence from the Indian agricultural commodity market

Purpose This study explores the association between market efficiency and speculation. The government of India temporarily banned the futures trading of various commodities several times citing the presence of speculation. Many controversies exist about this topic; thus, this study clarifies the association between market efficiency and speculation and investigates whether market reforms altered this association.Design/methodology/approach The data for nine commodities is collected from the National Commodity and Derivative Exchange (NCDEX) for 2005–2022. Regression analysis and Automatic Variance Ratio (AVR) were adopted to inspect the informational efficiency and influence of speculation in the commodity market. Furthermore, this study uses different sub-samples to understand the changes in the market microstructure and its effects on market quality.Findings The results confirm an inverse and significant relationship between information efficiency and speculation and a deviation from the random walk process observed. Therefore, return predictability exists in the market. This study confirms that market reforms do not reduce the influence of speculation on market efficiency. The study concludes that the market is not weak-form efficient.Research limitations/implications This study has certain limitations, since this study is empirical in nature, it may possess the limitations of empirical research.Originality/value This paper has dual novelty. First, this study investigates the effects of market reforms. Second, this study captures the influence of speculation in the Indian agricultural commodity market by considering the market microstructure aspects.

Evolving Efficiency of Cryptocurrency Market: Evidence from Leading Cryptocurrencies

The article investigated the efficiency of the cryptocurrency market, with a focus on Bitcoin (BTC), Ethereum (ETH), Tether (USDT), and Binance Coin (BNB-USD), based on their substantial market capitalization. For this purpose, we observed the daily closing prices spanning from January 2018 to December 2023 and employed a set of robust tests, including the generalized spectral test, automatic portmanteau test, and automatic variance ratio test. The findings of the study reveal a random pattern in price fluctuations, indicating weak form efficiency. Furthermore, we adopted the rolling window approach to investigate whether market efficiency is dynamic or static over time. The empirical result illustrated that the crypto market efficiency remains static over time, except for USDT. In conclusion, the overall empirical results support the notion of the random walk hypothesis, indicating that past price movements offer no predictive insight into future prices. These findings have significant implications for investors, emphasizing the lack of predictive insight from past price movements. Policymakers are urged to establish a robust framework for market integrity and reliable price discovery.

The Inefficiency of Bitcoin and the COVID-19 Pandemic

From the perspectives of asset pricing, market outreach, regulatory framework, and investor ethos, crypto markets differ substantially from traditional financial markets. Given these fundamental differences, it is interesting to examine how the notions of market efficiency apply to crypto markets, especially because the arguments of the efficient market hypothesis (Fama, 1970) and the adaptive market hypothesis (Lo, 2004, and Lo, 2008) were originally developed in the context of traditional financial markets. Research on the informational efficiency of crypto markets has attracted increasing attention in recent years. This paper examines the evolving efficiency of Bitcoin, the leading cryptocurrency, especially during the period when economies around the world were devastated by the Covid-19 pandemic. For a newly-emerged cryptocurrency with a market that is essentially global, a global shock like the Covid-19 pandemic presents ideal conditions for assessing how efficiency evolves as the market faces a series of shocks. Employing a fixed-length rolling window approach, this paper carries out the following tests: the automatic portmanteau test of Escanciano and Lobato (2009), the wild bootstrap automatic variance ratio test proposed by Kim (2009), the generalized spectral test of Escaciano and Valesco (2006), and the test proposed by Dominguez and Lobato (2003). The results provide evidence of episodes of inefficiency in a market that is efficient over extended periods. The inefficiency index constructed in this study shows that the Bitcoin market went through proportionately longer and more frequent episodes of inefficiency during the Covid-19 period. This is in line with the adaptive market hypothesis and has practical significance for investors and regulators.

Dynamic efficiency in MENA stock markets during COVID-19 outbreak and vaccines

PurposeThis paper examines the time-varying efficiency of nine major Middle East and North Africa (MENA) stock markets namely Egypt, Bahrain, UAE, Jordan, Saudi Arabia, Oman, Qatar, Morocco and Tunisia during times of COVID-19 pandemic outbreak and vaccines.Design/methodology/approachThe authors use two econometric approaches: (1) autocorrelation tests including the wild bootstrap automatic variance ratio test, the automatic portmanteau test and the Generalized spectral test, and (2) a non-Bayesian generalized least squares-based time-varying model with statistical inferences.FindingsThe results show that the degree of stock market efficiency of Egyptian, Bahraini, Saudi, Moroccan and Tunisian stock markets is influenced by the COVID-19 pandemic crisis. Furthermore, the authors find a tendency toward efficiency in most of the MENA markets after the announcement of the COVID-19's vaccine approval. Finally, the Jordanian, Omani, Qatari and UAE stock markets remain globally efficient during the three sub-periods of the COVID-19 pandemic outbreak.Originality/valueThe results have important implications for asset allocations and financial risk management. Portfolio managers may maximize the benefit of arbitrage opportunities by taking strategic long and short positions in these markets during downward trend periods. Policymakers should implement the action plans and reforms to protect the stock markets from global shocks and ensure the stability of the stock markets.

Testing the Adaptive Market Hypothesis in Equity Markets in Global Financial Crisis Periods: An Application on Borsa Istanbul Indices

We aim in this study to investigate the existence of the Adaptive Market Hypothesis in the Turkish stock market during the global crisis periods. In other words, it has been investigated whether there are periods in the stock market in Turkey is both efficient and inefficient. For this purpose, Borsa Istanbul's main index (XU100) and selected sector indices (XBANK, XGIDA, XTEKS, XTRZM) were tested in the crisis environments, the Asian Financial Crisis, the American "Dotcom" crisis, the Mortgage crisis, the European debt crisis and finally the Covid-19 crisis. Automatic Portmanteau and Wild Bootstrap Automatic Variance Ratio tests were used in the research. According to the results obtained, findings compatible with the Adaptive Market Hypothesis were reached in all Borsa Istanbul indices within the scope of the research. It has been observed that there may be fluctuations in market efficiency at different frequencies and durations in relation to the nature of the crisis and the source of its output. It is thought that the study is original and will contribute to the literature for the following reasons; the Adaptive Market Hypothesis for the Turkish stock market has been tested for all crisis periods in the recent history and the effects of the crises on the sectors are also examined in terms of effectiveness.

Impact of the Local and Global Crisis on Stock Market Efficiency

The study examines the evolution of the stock market efficiency of Indian banks during the period from 1 January 2007 to 30 June 2022. The study also seeks to investigate the degree of the impact of the different crises on the stock market efficiency in response to three major events: the global financial crisis, the local banking crisis and the pandemic crisis. For this, the wild bootstrap automatic variance ratio (WBAVR) test is applied using the rolling window method to account for the implications of the adaptive market hypothesis (AMH). For the robustness of the analysis, the study applies the automatic portmanteau (AQ) test, which is also based on a data-driven procedure. The findings show that the market efficiency of Indian banks is not an all-or-nothing phenomenon; rather, both efficiency and inefficiency co-exist simultaneously, with the Central Bank of India noted to be the most ‘inefficient’ bank. The findings demonstrate that market efficiency is ‘context-dependent’, that is, the stock market efficiency significantly alters in response to black-swan events happening in the economy. The study sheds light on the degree of the impact of different events on market efficiency, and it is shown that the internal crisis of the industry of high NPAs has a far greater impact on market efficiency compared to the global financial and pandemic crises. This research may assist policymakers in developing a comprehensive strategy to enhance the stock market efficiency of Indian banks in the face of such local and global crises.

On the efficiency of the gold returns: An econometric exploration for India, USA and Brazil

As a precious metal and investment commodity, gold has been signified to be important for risk management, diversification, and hedging. The gold market has undergone considerable structural changes in the facet of the pandemic and other geopolitical developments, attracting the interest of investors. Thus, it is crucial to look into how these structural changes affect the efficiency of the market. Accordingly, the study examines and compares the evolution of the gold market efficiency in three major economies from January 1, 2018, to August 31, 2022: India, USA, and Brazil. For this, we first decompose the time series using Loess Smoother's Seasonal and Trend Decomposition and then employ a multifractal detrended fluctuation analysis approach. The estimates are strengthened by the alternative approach of the rolling window method of wild bootstrap automatic variance ratio. The findings indicate a considerable decline in the efficiency of the gold returns across three economies, with the highest decline in India, followed by USA and Brazil. Notably, during covid and post covid periods, India and USA show persistence in small fluctuations, while Brazil displays persistent behavior in large fluctuations. Thereby, the market panic makes the gold market unstable, and its use as a safe haven is “erratic”.

Energy-conserving cryptocurrency response during the COVID-19 pandemic and amid the Russia–Ukraine conflict

PurposeThe mining process is essential in cryptocurrency networks. However, it consumes considerable electrical energy, which is undoubtedly harmful to the environment. In response, energy-conserving cryptocurrency projects with reduced energy requirements or based on renewable energies have been developed. Recently, the COVID-19 pandemic and the Russian invasion of Ukraine ignited an unprecedented upheaval in financial products, especially in cryptocurrency and energy markets. Therefore, the paper aims to explore the response of these energy-conserving cryptocurrencies to the COVID-19 pandemic and the Russia–Ukraine conflict.Design/methodology/approachThis paper investigates the response of these energy-conserving cryptocurrencies to the COVID-19 pandemic and the Russia–Ukraine conflict. Their competitiveness is compared with conventional ones by analyzing their efficiency through multifractal detrended fluctuation analysis and automatic variance ratio during the COVID-19 and Russian invasion periods.FindingsThe empirical results show that all investigated energy-conserving cryptocurrencies negatively responded to the pandemic and positively reacted to the Russian invasion. On the other hand, all conventional cryptocurrencies reacted negatively to the COVID-19 pandemic and the amid-Russian attack. Besides, Bitcoin and SolarCoin were the least inefficient before the outbreak of COVID-19. Nevertheless, the Ethereum market became the most efficient after the pandemic spread. Similarly, the efficiency of Ripple was the most significant during the conflict between Russia and Ukraine. The energy crisis caused by Russia benefited the efficiency of the studied energy-conserving cryptocurrencies.Practical implicationsThis research is of interest to investors seeking opportunities in these energy-conserving cryptocurrencies and policymakers working to implement reforms to improve their market efficiency and promote long-term financial market growth.Originality/valueTo the best of the authors' knowledge, the behavior of cryptocurrencies based on renewable and reduced energy during the recent conflict between Russia and Ukraine has not been explored.

Random Walk Hypothesis: An Empirical Comparison of Shari’ah and Non-Shari’ah Capital Markets of Pakistan and China

The instant research comparatively determines the weak-form informational efficiency of Shari’ah and corresponding non-Shari’ah equity indices of Pakistan and China by testing the Random Walk Hypothesis. For this purpose, this study employed the Automatic Variance Ratio on the daily index data for the time ranging from 1st July 2009 to 30th June 2018. The findings of the study show that the Shari’ah index of Pakistan (KMI-30) is informational efficient in weak-form but the Shari’ah index of China (FTSE Shariah China Index) is not efficient. On the other hand, as far as the non-Shari’ah indices are concerned, KSE-100 Index (Pakistan) is not weak-form efficient, but the Shanghai Composite Index (China) is efficient. So, it is determined that in Pakistan, the Shari’ah equity market is weak form efficient during the sample period but its counterpart non-Shari’ah equity market is not efficient. Further, in China, the non-Shari’ah stock market is weak-form efficient, but its Shari’ah stock market is not efficient. In the nutshell, it is concluded that the Shari’ah indices are also witnessing efficiency along with non-Shari’ah indices, and Shari’ah indices viz-a-viz Shari’ah stocks can be good option for optimum investment.

Stock Market Efficiency and COVID-19 with Multiple Structural Breaks: Evidence from India

The objective of the study is to investigate the influence of the coronavirus pandemic (endogenous crisis) on the stock market efficiency of India during the multiple break periods. The empirical analysis is performed using conditional heteroscedasticity and a small sample robust wild bootstrap automatic variance ratio test and automatic portmanteau test on a daily stock return data of two benchmark indices, that is, NIFTY and SENSEX. The empirical results demonstrate that the stock return of two indices deviates from market efficiency during some periods of the analysis, notably during the nationwide lockdown and peak periods of coronavirus cases in India. These findings indicate that changing stock market behaviour becomes more speculative and earns abnormal profits. To the best of the author’s knowledge, this study provides the first evidence of investigating the variations in the stock market efficiency of India in response to this endogenous crisis.

The Impact of the COVID-19 Outbreak on the Weak-Form Informational Efficiency of the Warsaw Stock Exchange

The aim of this paper is to verify whether the COVID-19 outbreak negatively affected the weak-form informational efficiency of the Warsaw Stock Exchange (WSE). Applying a wild bootstrapped automatic variance ratio test and the rolling window methodology, we verify the martingale hypothesis for daily returns of 437 stocks listed on the Main Market of the WSE i n a research period beginning on January 2nd, 2015 and ending on August 31st, 2020. The percentage of cases in which the martingale hypothesis cannot be rejected is our proxy for the weak-form informational efficiency that we come up with. Despite the rapid and significant price movements, as well as the rise of returns volatility (and thus a likely herd behavior of the market participants), the results obtained do not allow for stating unambiguously that the COVID-19 outbreak negatively affected the weak-form informational efficiency of the WSE. The results turned out to be sector-dependent. Future issue-related studies can apply other proxies of efficiency levels as a unique proxy applied in this study is based only on a wild bootstrapped automatic variance ratio test. The issue-related studies should be also continued as the pandemic is still an ongoing issue. This study comes up with a novel approach to approximating the weak-form informational efficiency, provides regulators, as well as other market participants with valuable information on the WSE efficiency changes in the COVID-19 pandemic times and even its long-term trends.

Impact of COVID-19 on stock market efficiency: Evidence from developed countries

This study investigates the impact of the novel coronavirus (COVID-19) pandemic on stock market efficiency for six hard-hit developed countries, namely, the United States (US), Spain, the United Kingdom (UK), Italy, France, and Germany. Applying the wild bootstrap automatic variance ratio test on daily stock market data from July 29, 2019 to January 25, 2021, it is found that all stock markets used in this study deviate from market efficiency during some periods of the pandemic. Deviations from market efficiency are seen more in the stock markets of the US and UK during the COVID-19 outbreak than in other stock markets. These results are strengthened when a different econometric method, the automatic portmanteau test, is used. The findings of this study indicate an increasing chance for stock price predictions and abnormal returns during the COVID-19 pandemic.

Market Adaptability and Evolving Predictability of Stock Returns: An Evidence from India

This study attempts to examine the adaptive market hypothesis and evolving predictability of stock returns using four decades of daily data from the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) in India. The recent developed automatic portmanteau ratio (AVR) and wild bootstrap automatic variance ratio (WAVR) test are used for analysis. We also estimate both the AVR and WAVR statistics in the rolling window framework to examine evolving predictability. The results revealed that BSE and NSE are informationally inefficient in the weak-form. The results of rolling window analysis suggested that the degree of predictable patterns evolves over the period due to global and regional economic and non-economic events. Further, the study compare which stock market is more efficient and found that NSE is more efficient than BSE. The findings of this study provide essential inputs to investors on trading strategies in dynamic economic situations and policymakers to formulate an appropriate policy that can make the Indian stock markets efficient.

Hisse Senedi Piyasalarının Zayıf Form Piyasa Etkinliğinin Küresel Ölçekte Karşılaştırılması: G-20 Üyeleri Üzerine Ampirik Bir Çalışma

This paper analyzes stock markets of G-20 members in terms of comparing return predictability, in other words, weak-form market efficiency using stock indexes weekly data of the G-20 members between 07.06.2009 and 09.02.2020. As a result of the wild bootstrap automatic variance ratio test analysis developed by Kim (2009), it is found that the stock markets of Brazil, South Africa, and Germany were weak-form efficient in the date range within the scope of the study, so the returns are unpredictable, while the weak-form efficiency (return predictability) of other markets are time-varying. In addition to Brazil, South Africa, and Germany, there is a very low chance to estimate returns with historical price movements or returns in Russia, France, Italy, United States, United Kingdom, and Canada stock markets. It is also found that the return predictability periods of Japan, Australia, China, Saudi Arabia, and especially Mexico’s stock markets are higher than other markets and the chance of success in estimating returns by using historical price information in these markets is quite high.

ARE MARKETS ADAPTIVE? EVIDENCE OF PREDICTABILITY AND MARKET EFFICIENCY OF LODGING/RESORT REITS

We investigate the degree of return predictability of lodging/resort real estate investment trusts (REITs) from January 1994 to May 2016. We test the Martingale hypothesis by using linear (automatic portmanteau and automatic variance ratio with rolling windows) and nonlinear tests (generalized spectral shape tests and Dominguez-Lobato consistent tests). Our findings support the Adaptive Market Hypothesis (AMH) and reveal that returns experience periods of both dependence and independence. We document time-varying predictability of lodging/resort REITs with returns as both initially predictable and subsequently unpredictable throughout the majority of the period of analysis. Moreover, we find that if traders use simple technical trading moving average rules, they can capitalize on the inefficiencies of lodging/resort REITs. Finally, we observe that absolute returns and Sharpe ratios of technical moving average rules outperform a simple buy-and-hold strategy.

Adaptive Market Hypothesis: Evidence from the Vietnamese Stock Market

This paper aims to test the adaptive market hypothesis in the two main Vietnamese stock exchanges, namely Ho Chi Minh City Stock Exchange (HSX) and Hanoi Stock Exchange (HNX), by measuring the relationship between current stock returns and historical stock returns. In particular, the tests employed are the automatic variance ratio test (“AVR”), the automatic portmanteau test (“AP”), the generalized spectral test (“GS”), and the time-varying autoregressive (TV-AR) approach. The empirical results validate the adaptive market hypothesis in the Vietnamese stock market. Furthermore, the results suggest that the evolution of HSX has served as an important factor of the adaptive market hypothesis.

Predictability, Price Bubbles, and Efficiency in the Indonesian Stock-Market

I examine the return predictability of the Indonesian stock-market during 1984–2016, in rolling windows, using an automatic portmanteau test and an automatic variance ratio. I find that the market’s efficiency and predictability vary over time—consistent with the adaptive market hypothesis—with returns being less predictable in recent periods, a sign of improving efficiency. I also find that a simple buy-and-hold investment strategy outperforms several technical trading rules, even after adjusting for risk. Furthermore, I find evidence of explosive behaviour in Indonesian stock prices and detect multiple bubbles, using sequential right-tailed unit-root tests.

Market Efficiency in Indian Exchange Rates: Adaptive Market Hypothesis

This paper utilizes the automatic variance ratio test and Belaire-Franch and Contreras (2004) rank-based tests to examine the adaptive market hypothesis in Indian exchange rates relative to US dollar (USD), Great British pound (GBP), Euro and Japanese yen (Yen). We use overlapping and non-overlapping moving subsample approach to examine the sensitivity of the results to a particular sample period. Our findings provide evidence in support of violation of the martingale hypothesis of Indian exchange rates relative to the US dollar and Japanese yen for whole sample period. Our findings also provide evidence that the predictability of returns of Indian exchange rates occurs from time to time and depends on occurrence of major macroeconomic events. These findings are consistent with the validity of adaptive market hypothesis in Indian exchange rates.

Adaptive Market Hypothesis: Evidence from the Ghanaian Stock Market

ABSTRACTThis study examines the return predictability of two indices – the GSEALSH index and the GSEFSII index on the Ghana stock market. We compare results from analyzing the return series between January 4, 2011 and August 28, 2015 using the generalized spectral test, the automatic portmanteau Box-Pierce test and the wild-bootstrapped automatic variance ratio test. A rolling window approach is used to track whether returns are predictable or not through time. It was observed that the GSEALSH index was more highly predictable than the GSEFSII index in all the three tests. The results obtained are consistent with the Adaptive Market Hypothesis.

Adaptive Market Hypothesis: Evidence from three centuries of UK data

We examine the evolving efficiency of UK stock market and currency (British Pound) during the last three centuries. Using both Automatic Variance Ratio (AVR) and Automatic Portmanteau (AQ) tests, we find evidence of time-varying degree of efficiency which supports the Adaptive Markets Hypothesis (AMH).