Open AccessThe Adaptive Market Hypothesis and the Day‑of‑the‑Week Effect in African Stock Markets: the Markov Switching Model
Author(s) -
Adefemi A. Obalade,
Paul-François Muzindutsi
Publication year - 2019
Publication title -
comparative economic research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.244
H-Index - 8
eISSN - 2082-6737
pISSN - 1508-2008
DOI - 10.2478/cer-2019-0028
Subject(s) - economics , stock (firearms) , markov chain , stock market , names of the days of the week , monetary economics , stock exchange , financial market , financial economics , finance , mathematics , mechanical engineering , paleontology , linguistics , statistics , philosophy , horse , engineering , biology
In line with the Adaptive Market Hypothesis (AMH), the objective of this study is to investigate how the day‑of‑the‑week (DOW) effect behaves under different bull and bear market conditions in African stock markets, and to examine the likelihood of being in a bull or bear regime for each market. A Markov Switching Model (MSM) was employed as the analytical technique. The results show that the DOW effect appears in one regime and disappears in another, in all markets, as rooted in the AMH. Lastly, all markets, except the Johannesburg Stock Exchange have a higher tendency to be in a bearish state than a bullish one. Our findings show that active investment management may yield profits for investors investing in most African markets during bearish conditions.