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Adaptive Market Hypothesis and Predictability: Evidence in Latin American Stock Indices
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Adaptive Market Hypothesis and Predictability: Evidence in Latin American Stock Indices
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Journal Article
Adaptive Market Hypothesis and Predictability: Evidence in Latin American Stock Indices
2024
Overview
This article examines the adaptive market hypothesis in the five most important Latin American stock indices. To that end, we apply three versions of the variance ratio test, as well as the Brock-Dechert-Scheinkman test for nonlinear predictability. Additionally, we perform the Dominguez-Lobato and generalized spectral tests to evaluate the Martingale difference hypothesis. Moreover, we consider salient news related to the plausible market inefficiencies detected by these four tests. Finally, we apply a GARCH-M model to assess the risk-return relationship through time. Our results suggest that the predictability of stock returns varies over time. Furthermore, the efficiency in each market behaves differently over time. All in all, the analyzed emerging market indices satisfy the adaptive market hypothesis, given the switching behavior between periods of efficiencies and inefficiencies, since the adaptive market hypothesis suggests that market efficiency and market anomalies might coexist in capital markets. Este artículo examina la hipótesis del mercado adaptativo en los cinco índices bursátiles más importantes de América Latina. Para tal fin, aplicamos tres versiones de la prueba de razón de varianza (VRT), así como la prueba de Brock-Dechert-Scheinkman (BDS) para predictibilidad no lineal. Adicionalmente, realizamos las pruebas Domínguez-Lobato (DL) y generalized spectral (GS) para evaluar la hipótesis de la diferencia Martingala. Además, consideramos las noticias más destacadas relacionadas con las plausibles ineficiencias del mercado detectadas por estas cuatro pruebas. Finalmente, se aplicó un modelo GARCH-M para evaluar la relación riesgo-rendimiento a lo largo del tiempo. Nuestros resultados sugieren que la predictibilidad de los rendimientos de las acciones varía con el tiempo. Además, encontramos que la eficiencia en cada mercado se comporta de manera diferente a lo largo del tiempo. Así, los índices de mercados emergentes analizados satisfacen la hipótesis del mercado adaptativo, debido al comportamiento cambiante entre períodos de eficiencias e ineficiencias, ya que la hipótesis del mercado adaptativo sugiere que la eficiencia del mercado y las anomalías del mercado pueden coexistir en los mercados de capital.
Publisher
Ubiquity Press Ltd,Cambridge University Press
