Testing the efficient market hypothesis in Latin American stock markets

M.A. Sánchez-Granero, K.A. Balladares, J.P. Ramos-Requena and Juan Trinidad-Segovia ()

Physica A: Statistical Mechanics and its Applications, 2020, vol. 540, issue C

Abstract: We propose a novel approach to study if Latin America Stock Markets are Efficient. This test is based on a statistical arbitrage technique known as Pairs Trading, which is a relative value trading strategy consisting in taking a position in a pair of stocks that are chosen to have similar characteristics and taking a long position in one stock and a short position in the other stock. We use an approach introduced in Ramos et al. (2007) based on the evolution of the Hurst Exponent of a pair. We will show how in emerging markets this trading strategy is profitable though it is not in developed markets, which is according with the weak form of efficiency.

Keywords: Efficient markets; Hurst exponent; Statistical arbitrage; Long memory (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:540:y:2020:i:c:s037843711931739x

DOI: 10.1016/j.physa.2019.123082

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