Revisiting Weak Form Efficiency of Major Equity Markets in Light of Global Financial Crisis : A Panel Data Approach

In a one of its kind study on the subject, weak form efficient market hypothesis (EMH) and Samuelson's dictum has been analyzed for seven major developed (Australia, Canada, France, Germany, Japan, UK and USA) and developing markets (Argentina, Brazil, China, India, Mexico, Russia and South Africa) by means of panel and individual time series. Our study period ranged from April 2003 to December 2014 which was further subdivided into a Pre-crisis period (April 2003 to July 2007) and a Post crisis period (August 2007 to December 2014). The analysis was carried out using Unit root tests (ADF, PP and KPSS); Lo-MacKinlay and Wright's (2000) Variance ratio tests based on Ranks and Sign. Various Unit Root Tests (Im, Pesaran & Shin; Levin, Lin & Chu; PP-Fisher and ADF-Fisher) were also applied on panel data. The results reveal that all markets under study individually exhibited weak form efficiency across the total, pre-crisis and post-crisis periods. No major impact of global financial crisis was found on efficiency of these stock markets individually. Similar results were obtained from panel data analysis, with the exception that panel of all countries and developing countries showed inefficiency for the total study period. These findings have significant implications for policy makers, regulators, investors, academicians and researchers. Market reforms of policy makers and market regulators have resulted in these markets remaining efficient even while withstanding the tsunami of global financial crisis. Investors, mutual fund and portfolio managers have a lesson to learn that developed and even developing markets have matured as a massive global financial crisis also could not provide them any major exploitable arbitrage opportunities which they could use to consistently beat the market. Inefficiency of panel of all countries and developing countries in the total period proves that Samuelson's Dictum of macro-inefficiency in presence of microefficiency largely holds true in present context