Analysis of market efficiency in main stock markets: using Karman-Filter as an approach

TL;DR

This paper applies Kalman-Filter analysis to evaluate market efficiency across major stock markets, demonstrating its effectiveness in forecasting and identifying profitable opportunities in both emerging and developed markets.

Contribution

It introduces the use of Kalman-Filter for market efficiency assessment, offering a novel approach that improves forecasting accuracy over traditional methods.

Findings

Significant portfolio returns in emerging markets like Korea, Vietnam, and Malaysia.

Positive returns observed in developed markets such as the UK, Europe, Japan, and Hong Kong.

Kalman-Filter-based indicator shows promising results across different market types.

Abstract

In this study, we utilize the Kalman-Filter analysis to assess market efficiency in major stock markets. The Kalman-Filter operates in two stages, assuming that the data contains a consistent trendline representing the true market value prior to being affected by noise. Unlike traditional methods, it can forecast stock price movements effectively. Our findings reveal significant portfolio returns in emerging markets such as Korea, Vietnam, and Malaysia, as well as positive returns in developed markets like the UK, Europe, Japan, and Hong Kong. This suggests that the Kalman-Filter-based price reversal indicator yields promising results across various market types.