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Testing the Efficient Market Hypothesis in G8 Countries: New evidence from Unit Root Tests with Fourier Shifts

Year 2023, , 1 - 18, 30.01.2023

İlhan Küçükkaplan , Emre Kılıç , Şevket Pazarcı , Asım Kar

https://doi.org/10.26650/JEPR1071070

Abstract

The aim of this study is to test the validity of the efficient market hypothesis for stock market indices in G-8 countries (USA, Germany, France, England, Italy, Japan, Canada, and Russia). The augmented Dickey-Fuller (ADF), residual augmented least squares (RALS)-ADF, Fourier-ADF, and Fourier-Kapetanios-Snell-Shin (Fourier-KSS) unit root tests are used to do this. The longest possible period was used as the analysis period by considering the data available for each index. Unlike the literature, the validity of the efficient market hypothesis for stock market indices in the G8 countries has been comprehensively and comparatively examined by simultaneously considering Fourier breaks, non-normal distribution, and non-linearity. According to the empirical findings, the null hypothesis was not be rejectable for all the unit root tests that were applied to the stock market indices from Germany, France, and Japan. In other words, strong evidence has been obtained for the validity of the efficient market hypothesis for the stock market indices from these three countries. On the other hand, the null hypothesis was rejected for Russia’s stock market index as a result of the unit root tests applied apart from ADF, with the results that emerged indicating the efficient market hypothesis to be invalid for that case. Different results were observed to have been caused by taking into account Fourier breaks and nonlinearity in other indices. The Fourier-KSS test considers the nonlinearity in a dataset using Fourier breaks and was found to provide more evidence for the invalidity of the efficient market hypothesis compared to the other types of tests. This reveals the importance of choosing the appropriate test for the data.

Keywords

Efficient market hypothesis Unit root tests with fourier break G-8 countries Random walk Weak form market efficiency

References

  • Al-Loughani, N. & Chappell, D. (1997). On the validity of the weak-form efficient markets hypothesis applied to the London stock exchange. Applied Financial Economics, 7(2), 173-176. google scholar
  • Balke, N. S. & Fomby, T B. (1997). Threshold cointegration. International Economic Review, 627-645. google scholar
  • Borges, M. R. (2010). Efficient market hypothesis in European stock markets. The European Journal of Finance, 16(7), 711-726. google scholar
  • Broock, W. A., Scheinkman, J. A., Dechert, W. D. & LeBaron, B. (1996). A test for independence based on the correlation dimension. Econometric Reviews, 15(3), 197-235. google scholar
  • Carrion-i-Silvestre, J.L., del Barrio-Castro, T. & López-Bazo, E. (2005). Breaking the panels: an application to the GDP per capita. Econometrics Journal, 8, 159-175. google scholar
  • Chan, K. C., Gup, B. E. & Pan, M. S. (1997). International stock market efficiency and integration: A study of eighteen nations. Journal of business finance & accounting, 24(6), 803-813. google scholar
  • Choi, I. (1992). Effects of data aggregation on the power of tests for a unit root: a simulation study. Economics Letters, 40(4), 397-401. google scholar
  • Christopoulos, D. K. & Leon-Ledesma, M. A. (2010). Smooth breaks and non-linear mean reversion: Post-Bretton Woods real exchange rates. Journal of International Money and Finance, 29(6), 1076-1093. google scholar
  • Davis, E. P. (1987). A stock-flow consistent macro-econometric model of the UK economy-part I. Journal of Applied Econometrics, 2(2), 111-132. google scholar
  • Dickey, D. A. & Fuller, W. A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Association, 74(366a), 427-431. google scholar
  • Dickey, D. A. & Fuller, W. A. (1981). Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica: journal of the Econometric Society, 1057-1072. google scholar
  • Enders, W. & Lee, J. (2012). A unit root test using a Fourier series to approximate smooth breaks. Oxford Bulletin of Economics and Statistics, 74(4), 574-599. google scholar
  • Erdem, E. & Ulucak, R. (2016). Efficiency of stock exchange markets in G7 countries: bootstrapcausality approach. Economics World, 4(1), 17-24. google scholar
  • Fama, E. F. (1970), Efficient Capital Markets: A Review of The Theory and Empirical Work, Journal of Finance, 25, 383-423. google scholar
  • Gümüş, B. F. & Zeren, F. (2014). Analyzing the efficient market hypothesis with the fourier unit root tests: Evidence from G-20 countries. Ekonomski horizonti, 16(3), 225-237. google scholar
  • Hacker, R. S. & Hatemi-J., A. (2006). Tests for causality between integrated variables using asymptotic and bootstrap distributions: Theory and application. Applied Economics, 38, 1489-1500. google scholar
  • Hadri K. & Kurozumi E. (2012). A Simple Panel Stationarity Test in the Presence of Serial Correlation and a Common Factor. Economics Letter, 115(1), 31-34. google scholar
  • Hansen, B. E. (1995). Rethinking the univariate approach to unit root testing: using covariates to ıncrease power. Econometric Theory, 11(5), 1148-1171. google scholar
  • Hepsağ, A. & Akçalı, B. Y. (2015). Zayıf formda piyasa etkinliğinin asimetrik doğrusalolmayan birim kök testi ile analizi: G-7 ve E-7 ülkeleri örneği. BDDK Bankacılık ve Finansal Piyasalar Dergisi, 9(2), 73-90. google scholar
  • Im, K. S. & Schmidt, P. (2008). More efficient estimation under non-normality when higher moments do not depend on the regressors, using residual augmented least squares. Journal ofEconometrics, 144(1), 219-233. google scholar
  • Jarque, C. M. & Bera, A. K. (1987). A test for normality of observations and regression residuals. International Statistical Review/Revue Internationale de Statistique, 55(2), 163-172. google scholar
  • Kapetanios, G., Shin, Y. & Snell, A. (2003). Testing for a unit root in the nonlinear STAR framework. Journal of econometrics, 112(2), 359-379. google scholar
  • Lu, Y. C., Chang, T., Hung, K. & Liu, W. C. (2010). Mean reversion in G-7 stock prices: Further evidence from a panel stationary test with multiple structural breaks. Mathematics and Computers in Simulation, 80(10), 20192025. google scholar
  • Murthy, V. N., Washer, K. & Wingender, J. (2011). Do US stock prices exhibit mean reversion? Evidence from recent nonlinear unit root tests. International Research Journal ofFinance and Economics, 68, 46-49. google scholar
  • Narayan, P. K. (2008). Do shocks to G7 stock prices have a permanent effect: Evidence from panel unit root tests with structural change. Mathematics and Computers in Simulation, 77(4), 369- 373. google scholar
  • Omay, T. (2015). Fractional frequency flexible Fourier form to approximate smooth breaks in unit root testing. Economics letters, 134, 123-126. google scholar
  • Özcan, B. & Gültekin, E. (2016). Etkin Piyasalar Hipotezi G-20 ülkeleri için geçerli mi? Yeni bir yaklaşım. ICEB Konferans Bildirileri, 12-17. google scholar
  • Patel, N. R., Radadia, N. & Dhawan, J. (2012). An empirical study on weak-form of market efficiency of selected Asian stock markets. Journal of Applied Finance and Banking, 2(2), 99. google scholar
  • Perron, P. (1989). The great crash, the oil price shock, and the unit root hypothesis. Econometrica: Journal of the Econometric Society, 57(6), 1361-1401. google scholar
  • Pesaran H. M. (2007). A Simple Panel Unit Root Test in the Presence of Cross-Section Dependence. Journal of Applied Economics, 22, 265-312. google scholar
  • Sezgin, Ö. G. A. & Sarıçoban, Ö. Ü. K. (2021). Ülkelerin İhraç Ettikleri Malların Üretim Faktör Yoğunluklarına Göre Uzmanlaşma Düzeylerinin Belirlenmesi: G8 ve Türkiye Karşılaştırması. XI. UMTEB International Congress On Vocational & Technical Sciences, Proceedings Book, 109-119. google scholar
  • Smith, G. (2011). G7 to G8 to G20: Evolution in Global Governance. CIGI G20 Papers, 6, 1-10. google scholar
  • Sönmez, F. E. (2021). Etkin Piyasa Hipotezinin Geçerliliği: G7 Ülkeleri Örneği. Yönetim ve Ekonomi: Celal Bayar Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi, 28(1), 67-82. google scholar
  • Stock, J.H. (1994). Unit roots, structural breaks and trends. Handbook of Econometrics, 4, 2739-2841. google scholar
  • Sümer, E. & Aybar, Ş. (2016). Etkin Piyasalar Hipotezinin, Finansal Piyasaları Açıklamadaki Yetersizliği ve Davranışsal Finans. Erzincan Üniversitesi Sosyal Bilimler Enstitüsü Dergisi, 9(2), 75-84. google scholar
  • Worthington, A. & Higgs, H. (2004). Random walks and market efficiency in European equity markets. The Global Journal of Finance and Economics, 1(1), 59-78. google scholar

G-8 Ülkelerinde Etkin Piyasa Hipotezinin Test Edilmesi: Fourier Kırılmalı Birim Kök Testlerinden Yeni Kanıtlar

Year 2023, , 1 - 18, 30.01.2023

İlhan Küçükkaplan , Emre Kılıç , Şevket Pazarcı , Asım Kar

https://doi.org/10.26650/JEPR1071070

Abstract

Bu çalışmanın amacı G-8 ülkelerinde yer alan borsa endeksleri için (ABD, Almanya, Fransa, İngiltere, İtalya, Japonya, Kanada ve Rusya) etkin piyasa hipotezinin geçerliliğini test etmektir. Bunun için ADF, RALS-ADF, FourierADF ve Fourier-KSS birim kök testlerinden yararlanılmıştır. Analiz dönemi olarak her bir endeks için veri bulunabilirliği göz önüne alınarak en uzun dönem kullanılmıştır. Literatürden farklı olarak G-8 ülkelerinde yer alan borsa endeksleri için etkin piyasa hipotezinin geçerliliği aynı anda hem fourier kırılmalar hem normal dağılmama durumu hem de doğrusal olmama durumu dikkate alınarak kapsamlı ve karşılaştırmalı bir şekilde incelenmiştir. Elde edilen ampirik bulgulara göre Almanya, Fransa ve Japonya’nın borsa endekslerinde uygulanan tüm birim kök testlerinde boş hipotez reddedilememiştir. Yani bu üç ülkenin borsa endeksleri için etkin piyasa hipotezinin geçerliliği için güçlü kanıtlar elde edilmiştir. Aksine Rusya’nın borsa endeksinde ise ADF dışında uygulanan birim kök testleri sonucunda boş hipotez reddedilerek etkin piyasa hipotezinin geçersiz olduğuna yönelik sonuçlar ortaya koyulmuştur. Diğer endekslerde de fourier kırılma ve doğrusal olmama durumunun dikkate alınmasına göre farklı sonuçların neden olduğu bilgisine ulaşılmıştır. Fourier kırılmalarla birlikte veri setindeki doğrusal olmama durumunun dikkate alındığı Fourier-KSS testi etkin piyasa hipotezinin geçersizliği yönünde diğer tip testlere göre daha fazla kanıt sunduğu gözlemlenmiştir. Bu durum, veri setine uygun test seçiminin önemini ortaya koymaktadır.

Keywords

Etkin piyasa hipotezi Fourier kırılmalı birim kök testleri G-8 ülkeleri Rassal yürüyüş Zayıf formda piyasa etkinliği

References

  • Al-Loughani, N. & Chappell, D. (1997). On the validity of the weak-form efficient markets hypothesis applied to the London stock exchange. Applied Financial Economics, 7(2), 173-176. google scholar
  • Balke, N. S. & Fomby, T B. (1997). Threshold cointegration. International Economic Review, 627-645. google scholar
  • Borges, M. R. (2010). Efficient market hypothesis in European stock markets. The European Journal of Finance, 16(7), 711-726. google scholar
  • Broock, W. A., Scheinkman, J. A., Dechert, W. D. & LeBaron, B. (1996). A test for independence based on the correlation dimension. Econometric Reviews, 15(3), 197-235. google scholar
  • Carrion-i-Silvestre, J.L., del Barrio-Castro, T. & López-Bazo, E. (2005). Breaking the panels: an application to the GDP per capita. Econometrics Journal, 8, 159-175. google scholar
  • Chan, K. C., Gup, B. E. & Pan, M. S. (1997). International stock market efficiency and integration: A study of eighteen nations. Journal of business finance & accounting, 24(6), 803-813. google scholar
  • Choi, I. (1992). Effects of data aggregation on the power of tests for a unit root: a simulation study. Economics Letters, 40(4), 397-401. google scholar
  • Christopoulos, D. K. & Leon-Ledesma, M. A. (2010). Smooth breaks and non-linear mean reversion: Post-Bretton Woods real exchange rates. Journal of International Money and Finance, 29(6), 1076-1093. google scholar
  • Davis, E. P. (1987). A stock-flow consistent macro-econometric model of the UK economy-part I. Journal of Applied Econometrics, 2(2), 111-132. google scholar
  • Dickey, D. A. & Fuller, W. A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Association, 74(366a), 427-431. google scholar
  • Dickey, D. A. & Fuller, W. A. (1981). Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica: journal of the Econometric Society, 1057-1072. google scholar
  • Enders, W. & Lee, J. (2012). A unit root test using a Fourier series to approximate smooth breaks. Oxford Bulletin of Economics and Statistics, 74(4), 574-599. google scholar
  • Erdem, E. & Ulucak, R. (2016). Efficiency of stock exchange markets in G7 countries: bootstrapcausality approach. Economics World, 4(1), 17-24. google scholar
  • Fama, E. F. (1970), Efficient Capital Markets: A Review of The Theory and Empirical Work, Journal of Finance, 25, 383-423. google scholar
  • Gümüş, B. F. & Zeren, F. (2014). Analyzing the efficient market hypothesis with the fourier unit root tests: Evidence from G-20 countries. Ekonomski horizonti, 16(3), 225-237. google scholar
  • Hacker, R. S. & Hatemi-J., A. (2006). Tests for causality between integrated variables using asymptotic and bootstrap distributions: Theory and application. Applied Economics, 38, 1489-1500. google scholar
  • Hadri K. & Kurozumi E. (2012). A Simple Panel Stationarity Test in the Presence of Serial Correlation and a Common Factor. Economics Letter, 115(1), 31-34. google scholar
  • Hansen, B. E. (1995). Rethinking the univariate approach to unit root testing: using covariates to ıncrease power. Econometric Theory, 11(5), 1148-1171. google scholar
  • Hepsağ, A. & Akçalı, B. Y. (2015). Zayıf formda piyasa etkinliğinin asimetrik doğrusalolmayan birim kök testi ile analizi: G-7 ve E-7 ülkeleri örneği. BDDK Bankacılık ve Finansal Piyasalar Dergisi, 9(2), 73-90. google scholar
  • Im, K. S. & Schmidt, P. (2008). More efficient estimation under non-normality when higher moments do not depend on the regressors, using residual augmented least squares. Journal ofEconometrics, 144(1), 219-233. google scholar
  • Jarque, C. M. & Bera, A. K. (1987). A test for normality of observations and regression residuals. International Statistical Review/Revue Internationale de Statistique, 55(2), 163-172. google scholar
  • Kapetanios, G., Shin, Y. & Snell, A. (2003). Testing for a unit root in the nonlinear STAR framework. Journal of econometrics, 112(2), 359-379. google scholar
  • Lu, Y. C., Chang, T., Hung, K. & Liu, W. C. (2010). Mean reversion in G-7 stock prices: Further evidence from a panel stationary test with multiple structural breaks. Mathematics and Computers in Simulation, 80(10), 20192025. google scholar
  • Murthy, V. N., Washer, K. & Wingender, J. (2011). Do US stock prices exhibit mean reversion? Evidence from recent nonlinear unit root tests. International Research Journal ofFinance and Economics, 68, 46-49. google scholar
  • Narayan, P. K. (2008). Do shocks to G7 stock prices have a permanent effect: Evidence from panel unit root tests with structural change. Mathematics and Computers in Simulation, 77(4), 369- 373. google scholar
  • Omay, T. (2015). Fractional frequency flexible Fourier form to approximate smooth breaks in unit root testing. Economics letters, 134, 123-126. google scholar
  • Özcan, B. & Gültekin, E. (2016). Etkin Piyasalar Hipotezi G-20 ülkeleri için geçerli mi? Yeni bir yaklaşım. ICEB Konferans Bildirileri, 12-17. google scholar
  • Patel, N. R., Radadia, N. & Dhawan, J. (2012). An empirical study on weak-form of market efficiency of selected Asian stock markets. Journal of Applied Finance and Banking, 2(2), 99. google scholar
  • Perron, P. (1989). The great crash, the oil price shock, and the unit root hypothesis. Econometrica: Journal of the Econometric Society, 57(6), 1361-1401. google scholar
  • Pesaran H. M. (2007). A Simple Panel Unit Root Test in the Presence of Cross-Section Dependence. Journal of Applied Economics, 22, 265-312. google scholar
  • Sezgin, Ö. G. A. & Sarıçoban, Ö. Ü. K. (2021). Ülkelerin İhraç Ettikleri Malların Üretim Faktör Yoğunluklarına Göre Uzmanlaşma Düzeylerinin Belirlenmesi: G8 ve Türkiye Karşılaştırması. XI. UMTEB International Congress On Vocational & Technical Sciences, Proceedings Book, 109-119. google scholar
  • Smith, G. (2011). G7 to G8 to G20: Evolution in Global Governance. CIGI G20 Papers, 6, 1-10. google scholar
  • Sönmez, F. E. (2021). Etkin Piyasa Hipotezinin Geçerliliği: G7 Ülkeleri Örneği. Yönetim ve Ekonomi: Celal Bayar Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi, 28(1), 67-82. google scholar
  • Stock, J.H. (1994). Unit roots, structural breaks and trends. Handbook of Econometrics, 4, 2739-2841. google scholar
  • Sümer, E. & Aybar, Ş. (2016). Etkin Piyasalar Hipotezinin, Finansal Piyasaları Açıklamadaki Yetersizliği ve Davranışsal Finans. Erzincan Üniversitesi Sosyal Bilimler Enstitüsü Dergisi, 9(2), 75-84. google scholar
  • Worthington, A. & Higgs, H. (2004). Random walks and market efficiency in European equity markets. The Global Journal of Finance and Economics, 1(1), 59-78. google scholar
There are 36 citations in total.

Details

Primary Language Turkish
Journal Section Makaleler
Authors

İlhan Küçükkaplan 0000-0001-6926-3659

Emre Kılıç 0000-0003-2900-5123

Şevket Pazarcı 0000-0002-3675-909X

Asım Kar 0000-0001-5763-1434

Publication Date January 30, 2023
Submission Date February 10, 2022
Published in Issue Year 2023

Cite

APA Küçükkaplan, İ., Kılıç, E., Pazarcı, Ş., Kar, A. (2023). G-8 Ülkelerinde Etkin Piyasa Hipotezinin Test Edilmesi: Fourier Kırılmalı Birim Kök Testlerinden Yeni Kanıtlar. İktisat Politikası Araştırmaları Dergisi, 10(1), 1-18. https://doi.org/10.26650/JEPR1071070
AMA Küçükkaplan İ, Kılıç E, Pazarcı Ş, Kar A. G-8 Ülkelerinde Etkin Piyasa Hipotezinin Test Edilmesi: Fourier Kırılmalı Birim Kök Testlerinden Yeni Kanıtlar. JEPR. January 2023;10(1):1-18. doi:10.26650/JEPR1071070
Chicago Küçükkaplan, İlhan, Emre Kılıç, Şevket Pazarcı, and Asım Kar. “G-8 Ülkelerinde Etkin Piyasa Hipotezinin Test Edilmesi: Fourier Kırılmalı Birim Kök Testlerinden Yeni Kanıtlar”. İktisat Politikası Araştırmaları Dergisi 10, no. 1 (January 2023): 1-18. https://doi.org/10.26650/JEPR1071070.
EndNote Küçükkaplan İ, Kılıç E, Pazarcı Ş, Kar A (January 1, 2023) G-8 Ülkelerinde Etkin Piyasa Hipotezinin Test Edilmesi: Fourier Kırılmalı Birim Kök Testlerinden Yeni Kanıtlar. İktisat Politikası Araştırmaları Dergisi 10 1 1–18.
IEEE İ. Küçükkaplan, E. Kılıç, Ş. Pazarcı, and A. Kar, “G-8 Ülkelerinde Etkin Piyasa Hipotezinin Test Edilmesi: Fourier Kırılmalı Birim Kök Testlerinden Yeni Kanıtlar”, JEPR, vol. 10, no. 1, pp. 1–18, 2023, doi: 10.26650/JEPR1071070.
ISNAD Küçükkaplan, İlhan et al. “G-8 Ülkelerinde Etkin Piyasa Hipotezinin Test Edilmesi: Fourier Kırılmalı Birim Kök Testlerinden Yeni Kanıtlar”. İktisat Politikası Araştırmaları Dergisi 10/1 (January 2023), 1-18. https://doi.org/10.26650/JEPR1071070.
JAMA Küçükkaplan İ, Kılıç E, Pazarcı Ş, Kar A. G-8 Ülkelerinde Etkin Piyasa Hipotezinin Test Edilmesi: Fourier Kırılmalı Birim Kök Testlerinden Yeni Kanıtlar. JEPR. 2023;10:1–18.
MLA Küçükkaplan, İlhan et al. “G-8 Ülkelerinde Etkin Piyasa Hipotezinin Test Edilmesi: Fourier Kırılmalı Birim Kök Testlerinden Yeni Kanıtlar”. İktisat Politikası Araştırmaları Dergisi, vol. 10, no. 1, 2023, pp. 1-18, doi:10.26650/JEPR1071070.
Vancouver Küçükkaplan İ, Kılıç E, Pazarcı Ş, Kar A. G-8 Ülkelerinde Etkin Piyasa Hipotezinin Test Edilmesi: Fourier Kırılmalı Birim Kök Testlerinden Yeni Kanıtlar. JEPR. 2023;10(1):1-18.