Get Used To or Adapt. Adaptive Market Hypothesis Testing with Linear and Nonlinear Unit Root Tests.

Çipe, Bilge; Aslan, Alper

The Adaptive Markets Hypothesis is seen as a mixture of the Efficient Markets Hypothesis and Behavioral Finance Theory. In this hypothesis, the sensitivity of markets to crises is measured. If a market experiences sudden changes in the face of crises, it is concluded that it is "not adaptive". This hypothesis, developed to increase the adaptability of markets, has been the subject of many researches recently. The subject of this study is to look for evidence of the existence of the Adaptive Markets Hypothesis in 33 stock market indices selected from 11 developed and developing countries. The aim here is to monitor the adaptation process of selected country stock markets during and after extraordinary situations such as crises and shocks. First, the selected country data were analyzed by Harvey et al. The Linearity test suggested by (2008) was deemed appropriate. As a result of the linearity test, LS (2013) single-break unit root test and LS (2003) two-break unit root test were applied to the linear index data. ESTAR type KSS and tau (τ) unit root tests were applied to the nonlinear index data. The findings obtained in the analysis results vary depending on the tests performed. The common conclusion reached as a result of the tests performed; Stock market indices selected as data do not contain a definitive judgment based on a single test. Therefore, if we get the result "APH is valid" according to one test and "invalid" according to the other test result, this does not mean that the tests are not sufficient, it means that they do not contain a definitive judgment. As a result, all markets adapt to crises and shocks at different times. Remarkable results have been observed, especially in the COVID-19 pandemic. While countries that are democratic and free are more sensitive to crises, closed countries such as Russia and China respond to crises more flexibly.

BEHAVIORAL economics; EFFICIENT market theory; STOCK exchanges; STOCK price indexes; DATA analysis; COVID-19 pandemic; DEMOCRACY; DEVELOPING countries

Turkish Studies - Economics, Finance, Politics, 2023, Vol 18, Issue 4, p1309

2667-5625

Academic Journal

10.7827/TurkishStudies.70805