Adaptive Market Hypothesis: Evidence from the Turkey Stock Market


KILIÇ Y.

JOURNAL OF APPLIED ECONOMICS AND BUSINESS RESEARCH, vol.10, no.1, pp.28-39, 2020 (ESCI) identifier

  • Publication Type: Article / Article
  • Volume: 10 Issue: 1
  • Publication Date: 2020
  • Journal Name: JOURNAL OF APPLIED ECONOMICS AND BUSINESS RESEARCH
  • Journal Indexes: Emerging Sources Citation Index (ESCI)
  • Page Numbers: pp.28-39
  • Keywords: Adaptive Market Hypothesis, Efficient Market Hypothesis, Behavioral Finance, Rolling Window, Turkey Stock Market, Borsa Istanbul, UNIT-ROOT, RANDOM-WALK, EFFICIENCY, PRICES, PREDICTABILITY, TESTS, INDEX
  • Akdeniz University Affiliated: Yes

Abstract

Adaptive Market Hypothesis argues that Effective Market Hypothesis and calendar anomalies may coexist. The focus of Adaptive Market Hypothesis is not any single behavior, but how the behavior responds to changing market conditions. Adaptive Market Hypothesis has been proposed as a hypothesis to resolve conflicts between Efficient Market Hypothesis and Behavioral Finance. With this hypothesis put forward in 2004, the studies defending the Efficient Market Hypothesis and Behavioral Finance started to be evaluated in a different framework. Accordingly, this study examines the predictability of return of Borsa Istanbul 100 index (XU100) within the framework of Adaptive Market Hypothesis. Return series were analyzed between January 02, 2013 - April 26, 2019 using Automatic Portmanteau Box-Pierce Test, Generalized Spectral Test and Wild-bootstrapped Automatic Variance Ratio Test. The rolling window approach was used to examine whether the time varying returns were predictable. It is concluded that Adaptive Market Hypothesis is not valid for Borsa Istanbul both for the full sample period and for the sub-periods. In other words, it has been determined that the degree of efficiency of the stock market index does not change over time depending on market conditions.