Title: Efficiency tests of the UK financial futures markets and the impact of electronic trading systems: a note on relative market efficiency
Abstract: Abstract The literature on weak-form efficient market hypothesis (EMH) has experienced a phenomenal growth over the past few decades, with the empirical framework mostly directed towards testing the absolute version of market efficiency. Evans (Citation2006) represents a small amount of studies that addressed the relative efficiency of financial markets. The present paper discusses the limitations of absolute market efficiency and surveys some measures proposed for assessing relative efficiency in extant literature. Acknowledgements The first author would like to thank Universiti Malaysia Sabah for giving him a scholarship to pursue his PhD study in Monash University. Notes 1 Nevertheless, the statistical tests employed by Evans (Citation2006) for testing market efficiency are subjected to major drawbacks. The inappropriateness of unit root tests for efficiency testing has been highlighted in two recent studies by Saadi et al. (Citation2006) and Rahman and Saadi (Citation2007). On the other hand, the lack of linear correlations obtained from the variance ratio test does not necessarily imply efficiency as returns series can be linearly uncorrelated and at the same time nonlinearly dependent (see Saadi et al., Citation2006; Lim and Brooks, Citation2007). 2 Due to space constraint, references are kept to minimum. However, they are available upon request from the author. 3 References are available upon request from the author. 4 Slezak (Citation2003) further showed that as long as irrational investors exist and there is a positive cost to becoming fully rational, then irrational agents will persist and their trades will cause predictability in equilibrium. Under these conditions, even weak-form efficient markets are impossible.
Publication Year: 2009
Publication Date: 2009-07-01
Language: en
Type: article
Indexed In: ['crossref']
Access and Citation
Cited By Count: 5
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