Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/237221 
Year of Publication: 
2020
Citation: 
[Journal:] Financial Innovation [ISSN:] 2199-4730 [Volume:] 6 [Issue:] 1 [Publisher:] Springer [Place:] Heidelberg [Year:] 2020 [Pages:] 1-21
Publisher: 
Springer, Heidelberg
Abstract: 
This paper derives a new method for comparing the weak-form efficiency of markets. The author derives the formula of the Sharpe ratio from the ARMA-GARCH model and finds that the Sharpe ratio just depends on the coefficients of the AR and MA terms and is not affected by the GARCH process. For empirical purposes, the Sharpe ratio can be formulated with a monotonic increasing function of R-squared if the sample size is large enough. One can utilize the Sharpe ratio to compare weak-form efficiency among different markets. The results of stochastic simulation demonstrate the validity of the proposed method. The author also constructs empirical AR-GARCH models and computes the Sharpe ratio for S&P 500 Index and the SSE Composite Index.
Subjects: 
ARMA
GARCH
Measurement of market efficiency
Sharpe ratio
Stochastic simulation
JEL: 
G10
G14
G17
C22
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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