Towards a new framework on efficient markets

Academic research on the efficiency of financial markets goes back several decades. Empirical evidence is mixed and academia is torn between two opposing convictions: the efficient market hypothesis (EMH) vs. behavioural finance. The recent Nobel Prize awarded to scholars from both sides of the debate confirms the stalemate. We apply multiple state-of-the-art efficiency tests in rolling windows of one year to leading global stock market indices to test the adaptive markets hypothesis (AMH), a proposed reconciling framework. We find the idea of dynamic and time-variant efficiency to be valid. Also the theoretical pattern of efficiency predicted by the AMH is in line with our results. Furthermore, we find that the effect of the most recent financial crisis on weak form market efficiency is most prominent on the U.S. stock market. The European and Japanese markets appear more consistently efficient over the course of the last 15 years.