Do Financial Markets Adapt Differently? A Cross-Country Examination Using the Adaptive Market Hypothesis

Purpose: This research aims to simultaneously examine different aspects of the Adaptive Market Hypothesis (AMH) in the global financial market context, a topic of significant interest and relevance. We seek to answer whether financial markets can adapt differently, a question that is particularly pertinent in today's dynamic financial landscape. A Cross-Country
Design/methodology/approach: This research pioneers a comprehensive approach by combining multiple linear and non-linear tests for this study, thereby ensuring the robustness of our conclusion. We use the martingale difference hypothesis (MDH) or autocorrelation tests to detect linear and non-linear relationships in a time series, from which a conclusion regarding the validation of the AMH theory can be made. Our use of tests that use different techniques to overcome the drawbacks of each method showcases the thoroughness of our research methodology.

This research goes further by conducting additional robust tests to enhance the examination of the AMH. The Markov Switching Model, a powerful tool for analyzing regime shifts that influence the behavior of the financial market, is employed. This method significantly strengthens our research, enabling us to capture changes in the structure of the market dynamics and provide a more comprehensive understanding of AMH.

Findings: The predictability of stock returns is subject to fluctuations over time. Moreover, the efficiency of each market demonstrates a unique pattern of behavior over time. thereafter Markets have a cyclical pattern of efficiency and inefficiency. And the test results support the Adaptive Market Hypothesis (AMH).
Originality/value: This research examines AMH in the global financial market setting and asks whether financial markets may respond differently. Cross-country strategy is key to AMH. The research tries to improve literature in numerous ways. The research aims to track and explain the evolution of developed, frontier, and emerging financial markets from various perspectives. Studying the AMH in these financial markets is important because it allows us to generalize the theory across different settings and cultures.