A nonlinear Bayesian filtering approach to estimating adaptive market effciency
-
Gennady Yu. Kulikov
,
David R. Taylor
Abstract
The adaptive market hypothesis (AMH) supplies a convincing motivation for why market efficiency should not be regarded as a stable property in time. This paper explores a Bayesian methodology for estimating weak-form market efficiency under the AMH using a test of evolving efficiency (TEE). More precisely, a generalized TEE (GTEE) approach is proposed in which the conditional first moment of a time series is assumed to be a nonlinear function of its conditional second moment, i.e., a nonlinear feedback term is present in the conditional mean equation. We then discuss a maximum likelihood estimation procedure for the resulting nonlinear model using the state-space approach and extended Kalman filtering. This methodology is used to estimate time-varying, weak-form market efficiency in four, specifically chosen, markets over a time-period that includes the global financial crisis of 2007/2008.
Funding The first and third authors acknowledge the support from Portuguese National Funds through the Fundação para a Ciência e a Tecnologia (FCT) within project UID/Multi/04621/2013 and the Investigador FCT 2013 programme.
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© 2019 Walter de Gruyter GmbH, Berlin/Boston
Articles in the same Issue
- Frontmatter
- Numerical method for 3D two-component isothermal compressible flows with application to digital rock physics
- Asymptotic boundary conditions for the analysis of hydrodynamic stability of flows in regions with open boundaries
- A nonlinear Bayesian filtering approach to estimating adaptive market effciency
- Universal modification of vector weighted method of correlated sampling with finite computational cost
- Robust regularization of topology optimization problems with a posteriori error estimators
Articles in the same Issue
- Frontmatter
- Numerical method for 3D two-component isothermal compressible flows with application to digital rock physics
- Asymptotic boundary conditions for the analysis of hydrodynamic stability of flows in regions with open boundaries
- A nonlinear Bayesian filtering approach to estimating adaptive market effciency
- Universal modification of vector weighted method of correlated sampling with finite computational cost
- Robust regularization of topology optimization problems with a posteriori error estimators
