Stock returns and calendar anomalies on the London Stock Exchange in the dynamic perspective of the Adaptive Market Hypothesis: A study of FTSE100 &amp; FTSE250 indices over a ten year period

Lucrezia Rosini; Vijay Shenai; Lucrezia Rosini; Vijay Shenai

doi:10.3934/QFE.2020006

Quantitative Finance and Economics

2020, Volume 4, Issue 1: 121-147. doi: 10.3934/QFE.2020006

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Research article

Stock returns and calendar anomalies on the London Stock Exchange in the dynamic perspective of the Adaptive Market Hypothesis: A study of FTSE100 & FTSE250 indices over a ten year period

Lucrezia Rosini ¹,
Vijay Shenai ^{2
,
,}

1.
University of Westminster, London W1 7BY, UK
2.
University of Lincoln, Lincoln LN6 7TS, UK

Received: 30 January 2020 Accepted: 28 February 2020 Published: 05 March 2020
JEL Codes: G12, G14, G15

This paper analyses the behaviour of stock returns and calendar anomalies over a ten year period: 2007Ƀ2016 on the London Stock Exchange, through two major indices, the FTSE100 and FTSE250. The efficiency of the indices and the presence of calendar anomalies are investigated with parametric and non-parametric tests. The two main indices of the UK stock market undergo changes from states of dependency of returns to independence of returns and vice versa, but their behaviour is not concomitant. This study finds that financial markets in the UK can undergo changes from states of inefficiency moving to efficiency and vice versa in support of the Adaptive Market Hypothesis. This study also captures the inconstant and time varying behaviour of calendar anomalies and their occurrence. This again supports the Adaptive Market Hypothesis. Overall, it enables investors to get a better understanding of the behaviour of stock returns and to devise profitable investment strategies according to market conditions.
- London Stock Exchange,
- market efficiency,
- parametric and non-parametric tests,
- behavioural finance
Citation: Lucrezia Rosini, Vijay Shenai. Stock returns and calendar anomalies on the London Stock Exchange in the dynamic perspective of the Adaptive Market Hypothesis: A study of FTSE100 & FTSE250 indices over a ten year period[J]. Quantitative Finance and Economics, 2020, 4(1): 121-147. doi: 10.3934/QFE.2020006

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Abstract

This paper analyses the behaviour of stock returns and calendar anomalies over a ten year period: 2007Ƀ2016 on the London Stock Exchange, through two major indices, the FTSE100 and FTSE250. The efficiency of the indices and the presence of calendar anomalies are investigated with parametric and non-parametric tests. The two main indices of the UK stock market undergo changes from states of dependency of returns to independence of returns and vice versa, but their behaviour is not concomitant. This study finds that financial markets in the UK can undergo changes from states of inefficiency moving to efficiency and vice versa in support of the Adaptive Market Hypothesis. This study also captures the inconstant and time varying behaviour of calendar anomalies and their occurrence. This again supports the Adaptive Market Hypothesis. Overall, it enables investors to get a better understanding of the behaviour of stock returns and to devise profitable investment strategies according to market conditions.

References

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