An empirical analysis of the information efficiency of Australian equity markets

Abstract Purpose – The purpose of this paper is to investigate whether the Australian equity market is informationally efficient in the semi-strong form with regard to interest rates and the exchange rate shocks during the period 1994-2006. Design/methodology/approach – There is evidence that the data are non-normal and that autoregressive conditional heteroskedasticity (ARCH) effects exist and in such circumstances, standard estimation methods are not reliable. A new method introduced by Hacker and Hatemi-J which is robust to non-normality and the presence of ARCH is applied. Findings – The results show the Australian equity market is not informationally efficient with regard to either the interest rate or the exchange rate. Originality/value – The empirical findings, in contrast to several previous studies, imply that the possibility for arbitrage profits in the equity market might exist.