Testning the Adaptive Market Hypothesis on the OMXS30 Stock Index: 1986-2014 : Stock Return Predictability And Market Conditions

Sammanfattning: We evaluate the validity of the Adaptive Market Hypothesis (AMH) in a Swedish context by testing for stock return predictability on the OMXS30 stock index between 1986 and 2014 using daily returns and monthly two year moving subsamples. To our knowledge, this is the first study to evaluate the AMH in a Swedish context. Three tests for linear independence based on Lo and MacKinlay (1988) variance ratio test, namely the Chow and Denning joint test as well as Wright (2000) joint rank and sign tests are used. We also test for non-linear independence using the BDS test statistics. Presented in our findings is evidence of time-varying predictability where stock returns go through periods of return predictability and non-predictability. When evaluating the different market conditions (volatility, bull, bear, up, down and normal markets) we find that these different market conditions govern the degree of stock return predictability in different ways. Our findings support the AMH on the OMXS30 stock index and in contrast to previous research regarding market efficiency on the Swedish stock market, we do not find persistent stock return predictability over the short and long term.