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

Öz

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.

Anahtar Kelimeler

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

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

Öz

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.

Anahtar Kelimeler

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

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