The Evolution of Market Efficiency: 103 Years Daily Data of the Dow

Anthony Yanxiang Gu and Joseph Finnerty

Review of Quantitative Finance and Accounting, 2002, vol. 18, issue 3, 219-37

Abstract: Autocorrelation in daily returns of the Dow 30 Index fluctuates significantly over time and reveals a declining trend after World War II. The relation between autocorrelation and volatility is negative and nonlinear. The relation between autocorrelation and volume is also negative and nonlinear. Returns exhibit positive autocorrelation during years with higher autocorrelation, and negative autocorrelation during years with lower autocorrelation. Positive autocorrelation appears more frequently during periods of low volatility, while negative autocorrelation appears more frequently during periods of high volatility. Current period's autocorrelation is related to previous period's autocorrelation and to both the previous and the current period's volatility and rate of return, which implies that investors incorporate previous period's pattern of market behavior into their trading strategy. Copyright 2002 by Kluwer Academic Publishers

Date: 2002
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