A comparison of the efficient market hypothesis and the adaptive market hypothesis in equity markets; an application on D8 countries

While the efficient market hypothesis argues that asset prices traded in financial markets include all available information and that these prices are formed randomly and that investors cannot earn above-normal returns, behavioral finance tries to understand how investors behave when making decisions. It argues that decision-making is imperfect and market participants make decisions that satisfy themselves personally rather than maximizing their utility. The adaptive market hypothesis, which argues that efficiency may emerge from time to time depending on investor characteristics and environmental conditions, states that market efficiency is dynamic and variable and that investors are in a continuous learning and adaptation process. This study investigates whether EPH and APH are valid in the equity markets of the D8 countries. In this context, weekly data for all countries between 12.01.2014-08.10.2023 are divided into three periods (Q1: 12.01.2014-12.03.2017, Q2: 09.04.2017-12.07.2020, Q3: 26.07.2020-08.10.2023). In addition, in order to test the EPH, the study also uses data for the whole period (GETtüm: 12.01.2014 08.10.2023). In the study, the validity of EPH and APH is examined by Jarque-Bera, Zivot-Andrews unit root test (1992), variance ratio, BDS and Autocorrelation tests. As a result of the study, it is concluded that the efficiency of the equity markets of the D8 countries may vary in terms of the methods and periods used, the adaptive market hypothesis is more successful than the efficient market hypothesis in some periods, but in general, there is no efficiency in the equity markets, and accordingly, the adaptive market hypothesis is invalid.