The Evolving and Relative Efficiencies of Stock Markets : Empirical Evidence from Rolling Bicorrelation Test Statistics

The present paper utilizes the portmanteau bicorrelation test statistic of Hinich (1996) in a rolling sample approach to capture the evolution of market efficiency over time. The proposed framework also allows us to compare the relative efficiency of stock markets based on those rolling bicorrelation statistics. Using all the country indices constructed by MSCI that covered both developed and emerging stock markets, the results reveal that the degree of market efficiency varies through time in a cyclical fashion over time. These statistical features are in line with the Adaptive Markets Hypothesis of Lo (2004, 2005, 2006). On the other hand, though developed stock markets are found to be more efficient than emerging markets, there are exceptional cases that suggest market efficiency is not solely determined by the stage of stock market development. Implications of the findings are also discussed in the paper