Review of Financial Studies Vol. 30 No. 4 2017

The Dynamics of Market Efficiency

Dominik M. Rösch¹; Avanidhar Subrahmanyam²; Mathijs A. Van Dijk³

¹ State University of New York, Buffalo · ² University of California, Los Angeles · ³ Rotterdam School of Management Erasmus University

Abstract

We study the dynamics of high-frequency market efficiency measures. We provide evidence that these measures comove across stocks and with each other, suggesting the existence of a systematic market efficiency component. In vector autoregressions, we show that shocks to funding liquidity (the TED spread), hedge fund assets under management, and a proxy for algorithmic trading are significantly associated with systematic market efficiency. Thus, stock market efficiency is prone to systematic fluctuations, and, consistent with recent theories, events and policies that impact funding liquidity can affect the aggregate degree of price efficiency.

DOI

10.1093/rfs/hhw085

Volume

30

Issue

4

Pages

1151-1187

Language

en

Sources

openalex crossref

Cite

APA 7 MLA 9 Chicago (author–date) Harvard Elsevier Harvard (JFE, JBF…) The Accounting Review Academy of Management American Marketing Association INFORMS (Management Science) Copy citation Copied ✓