Serial correlation in the Spanish Stock Market

In this article, we investigate the efficiency of the Spanish Stock Market over time, as this market has become more transparent, larger and more liquid. Using Variance Ratio tests, we find that the most important Spanish equity indexes (IGBM and IBEX35) have been predictable until 1997 on a daily basis, but not after that date. Regarding weekly and monthly index returns, they have been serially uncorrelated since 1972 and, at least 1966, respectively. In addition, we find evidence of cross-serial correlation between small portfolio returns and lagged large portfolio returns, that cannot be explained by autocorrelation and high contemporaneous correlation between portfolios. Instead, partial adjustment to new information seems to be the most plausible explanation.