A Test for Joint Market Efficiency from an Investor’s Perspective ()
ABSTRACT
This paper investigates the cross-country correlation
between stock markets and its implications. It does so by introducing a new measure
called the Scaled Covariance Difference (SCD),
which captures the difference between the covariance of short term returns and longer
term returns. This measure has practical implications for portfolio optimization,
as well as in testing for the joint efficiency of markets. Our focus in this paper
is on including the off-diagonal terms of the variance-covariance matrix in the
analysis so as to develop a test for joint market efficiency, unlike the univariate
tests for market efficiency which only make use of information along the main diagonal
of the variance-covariance matrix. We also demonstrate how to implement the test
for joint market efficiency using data on weekly stock returns from the Nifty and
S&P 500 indices.
Share and Cite:
Viswanathan, L. , Maheswaran, S. and Balasubramanian, G. (2019) A Test for Joint Market Efficiency from an Investor’s Perspective.
Theoretical Economics Letters,
9, 1518-1533. doi:
10.4236/tel.2019.95098.
Cited by
No relevant information.