Open AccessEfficient Markets Hypothesis in the time of COVID-19.
Author(s) -
Evangelos Vasileiou
Publication year - 2021
Publication title -
review of economic analysis
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.101
H-Index - 1
ISSN - 1973-3909
DOI - 10.15353/rea.v13i1.1799
Subject(s) - stock market , irrational number , economics , stock market index , financial market , financial economics , covid-19 , order (exchange) , rational expectations , capital asset pricing model , econometrics , index (typography) , efficient market hypothesis , market depth , finance , computer science , mathematics , medicine , paleontology , geometry , disease , horse , pathology , world wide web , infectious disease (medical specialty) , biology
This paper examines how the largest stock market of the world, the U.S., and particularly the S&P500 index, reacted during the COVID-19 outbreak (02.01.2020-30.04.2020). Using simple financial and corporate analysis (adopting Constant Growth Model) procedures for our theoretical framework, we juxtapose the released news with the respective market performance in order to examine if the stock market always incorporated the available information in time. We show that the market in some sub-periods was not moving as it was expected, and the runs-test statistically confirmed our assumptions that the US stock market was not efficient during the COVID-19 outbreak. We find that in some cases the market does not incorporate the news instantly, is irrational, and non-sensible. All these make the market’s behavior unpredictable for a rational asset pricing model because as this paper shows even the simplest financial theories could explain rational behavior, but the market presented a different performance.