Authors: Nektarios A. Michail
Addresses: Economic Analysis and Research Department, Central Bank of Cyprus, 80 Kennedy Avenue, 1076, Nicosia, Cyprus; Faculty of Management and Economics, Cyprus University of Technology, 115, Spyrou Araouzou Street, 3603, Lemesos, Cyprus; Cyprus Centre for Business Research, 25, Zannetos Street, Ayios Andreas, 1100, Nicosia, Cyprus
Abstract: The return predictability of 242 companies with continuous daily trading in the Standard and Poor's index during the 2000-2014 period is examined using rolling variance ratio tests. The results indicate that predictability is time-varying and stock-specific, a finding which is in accordance to the adaptive market hypothesis. During the great recession the number of stocks whose returns were found to be predictable increased substantially, especially during the period of Lehman Brothers bankruptcy. Importantly, predictability is found to be driven by changing market conditions, such as stock market volatility and economic fundamentals.
Keywords: stock market predictability; adaptive markets; great recession; mean reversion.
International Journal of Banking, Accounting and Finance, 2019 Vol.10 No.2, pp.162 - 180
Received: 12 Dec 2016
Accepted: 08 Dec 2017
Published online: 02 May 2019 *