MARKET EFFICIENCY DYNAMICS DURING THE COVID-19 PANDEMIC

Résumé

The Adaptive Market Hypothesis (AMH) implies that financial markets experience disruption in market efficiency, especially during an extreme event such as the Covid 19 outbreak. To investigate this implication, we examine the AMH in major developed and emerging financial markets before and during the Covid 19 pandemic. Thus, we use the daily returns over the period from 2012 to 2021 as well as linear and nonlinear tests with rolling window. Empirical findings reveal that the market efficiency is time-varying with successive periods of efficiency and inefficiency. Furthermore, we find that market efficiency is influenced by the Covid 19 event. Indeed, the inefficiency period coincides with the onset of the Covid 19 crisis in all the markets examined except the Brazilian market. However, the degree of market efficiency improved amid the crisis. This change in market efficiency may be driven by the behavior of investors and regulatory policies adopted by authorities to ensure market stability. Therefore, the results are consistent with the AMH which offers a better explanation of the behavior of developed and emerging markets than the Efficiency Market Hypothesis (EMH). Our results have important implications for regulatory policies and investment strategies.