Measuring capital market efficiency: Global and local correlations structure

By Ladislav Kristoufek, Miloslav S. Vosvrda. 2012

172 citations recorded by the source corpus.

We introduce a new measure for capital market efficiency. The measure takes into consideration the correlation structure of the returns (long-term and short-term memory) and local herding behavior (fractal dimension). The efficiency measure is taken as a distance from an ideal efficient market situation. The proposed methodology is applied to a portfolio of 41 stock indices. We find that the Japanese NIKKEI is the most efficient market. From a geographical point of view, the more efficient markets are dominated by the European stock indices and the less efficient markets cover mainly Latin America, Asia and Oceania. The inefficiency is mainly driven by a local herding, i.e. a low fractal dimension.

Subfields: Economics and Econometrics, Finance, Management Science and Operations Research

View Paper: https://www.semanticscholar.org/paper/5f55b3b4838ea5a69a4269f6888449a99909a80d

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In Economics and Econometrics

In Finance

In Management Science and Operations Research

Citations in the corpus

Efficiency of the financial markets during the COVID-19 crisis: Time-varying parameters of fractional stable dynamics (2020, methodology): “Other indicators measure a deviation from a random walk, using for example variance ratios [15] or a combination of several statistics such as fractal dimension and entropy [47, 46].”
Commodity futures and market efficiency (2013, methodology): “Moreover, we utilize the efficiency measure introduced by Kristoufek and Vosvrda (2013) to rank the commodities according to their efficiency.”