Publication at Faculty of Mathematics and Physics, Faculty of Social Sciences |
2012
Abstract
We propose a new measure of capital market efficiency. The measure takes into consideration the correlation structure of the returns (long- term and short-term memory) and local dynamics of the markets (information dimension).
The efficiency measure is then taken as a distance from an ideal efficient market situation. Methodology is applied to a portfolio of 40 stock indices.
By distinguishing between local and global inefficiencies, we find that the total inefficiency is mainly driven by the local inefficiencies, i.e. a low information (fractal) dimension.