Measuring capital market efficiency: Long-term memory, fractal dimension and approximate entropy

TL;DR

This paper assesses global stock market efficiency using advanced statistical measures like long-term memory, fractal dimension, and approximate entropy, revealing regional differences in market efficiency levels.

Contribution

It introduces a novel approach combining multiple complexity measures to evaluate stock market efficiency across different regions.

Findings

Eurozone markets are the most efficient

Latin American markets are the least efficient

Methodology effectively captures inefficiencies in stock markets

Abstract

We utilize long-term memory, fractal dimension and approximate entropy as input variables for the Efficiency Index [Kristoufek & Vosvrda (2013), Physica A 392]. This way, we are able to comment on stock market efficiency after controlling for different types of inefficiencies. Applying the methodology on 38 stock market indices across the world, we find that the most efficient markets are situated in the Eurozone (the Netherlands, France and Germany) and the least efficient ones in the Latin America (Venezuela and Chile).