Adaptive market hypothesis and investor sentiments: global evidence

Abstract

Purpose

The purpose of this study is to investigate the adaptive market hypothesis (AMH) for 21 major global market indices for the period 1998–2018. These market indices cover the 16 largest global financial markets.

Design/methodology/approach

Quantile-regression methodology is employed to examine the market efficiency of a large number of financial markets from America, Europe and the Asia–Pacific region.

Findings

The results show that the returns in higher quantiles are negatively autocorrelated, and those in lower quantiles are positively autocorrelated. This evidence is stronger for the tails of return distribution. The positive autocorrelation (momentum effect) suggests market underreaction, and the negative autocorrelation (reversal effect) suggests overreaction. Overall, market efficiency appears to be time-varying and conditioned to the state of the market.

Originality/value

This study offers considerable evidence in favor of the AMH, for a large number of financial markets. These markets are substantially different from each other in terms of geography, nature of operation and size of the economy. The results from this study would be helpful to the academics, regulators and practitioners interested in financial markets.

Citation

Tripathi, A., Vipul, V. and Dixit, A. (2020), "Adaptive market hypothesis and investor sentiments: global evidence", Managerial Finance, Vol. 46 No. 11, pp. 1407-1436. https://doi.org/10.1108/MF-08-2019-0396