The Dynamics of Market Efficiency

Dominik M. Rösch, Avanidhar Subrahmanyam and Mathijs van Dijk ()
Authors registered in the RePEc Author Service: Dominik Roesch

The Review of Financial Studies, 2017, vol. 30, issue 4, 1151-1187

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.Received April 30, 2016; editorial decision June 27, 2016 by Editor Stefan Nagel

JEL-codes: G10 G14 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (47)

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