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Do Market Efficiency Measures Yield Correct Inferences? A Comparison of Developed and Emerging Markets

John M. Griffin¹; Patrick J. Kelly²; Federico Nardari³

¹ The University of Texas at Austin · ² University of South Florida · ³ University of Houston

Using data from 56 markets, we find that short-term reversal, post-earnings drift, and momentum strategies earn similar returns in emerging and developed markets. Variance ratios and market delay measures often show greater deviations from random walk pricing in developed markets. Conceptually, we show that commonly used efficiency tests can yield misleading inferences because they do not control for the information environment. Our evidence corrects misperceptions that emerging markets feature larger trading profits and higher return autocorrelation, highlights crucial limitations of weak and semi-strong form efficiency measures, and points to the importance of measuring informational aspects of efficiency.

DOI

10.1093/rfs/hhq044

Volume

23 (8)

Pages

3225-3277

Language

en

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