The dynamics of market efficiency

Dominik Rosch; A Subrahmanyam; Mathijs van Dijk

doi:10.1093/rfs/hhw085

The dynamics of market efficiency

Dominik Rosch, A Subrahmanyam, Mathijs van Dijk

Department of Finance

Research output: Contribution to journal › Article › Academic › peer-review

65 Citations (Scopus)

193 Downloads (Pure)

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.

Original language	English
Pages (from-to)	1151-1187
Number of pages	37
Journal	The Review of Financial Studies
Volume	30
Issue number	4
DOIs	https://doi.org/10.1093/rfs/hhw085
Publication status	Published - 2017

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10.1093/rfs/hhw085

REPUB_99752.pdfFinal published version, 342 KBLicence: Article 25fa Dutch Copyright Act

http://hdl.handle.net/1765/99752

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title = "The dynamics of market efficiency",

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.",

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AB - 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.

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DO - 10.1093/rfs/hhw085

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The dynamics of market efficiency

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