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Testing the Adaptive Markets Hypothesis: An examination of the variability of the risk-return trade-off over time and in different market environments
Södertörn University, School of Social Sciences, Business Studies.
2018 (English)Independent thesis Basic level (degree of Bachelor), 10 credits / 15 HE creditsStudent thesis
Abstract [en]

A new hypothesis, The Adaptive Markets Hypothesis (AMH), is applied to the Swedish stockmarket context by testing the variability of the risk-return trade-off over different investment horizons and market environments. Yearly returns and volatility are measured on OMXS30 index between1986 and 2017 over a variety of different investment horizons. Through the sample observations, a number of distinct market environments become apparent. A regression analysis is then used to test the statistical significance of the risk-return relationship. The results show a weak – and varying – statistical relationship between risk and return, implying that risk is not a reliable explanatory variable for average returns. The length of the investment horizon and the market environment the investment is being made in are shown to be influential factors on changes to the risk-return relationship. These findings from the OMXS30 index support the AMH, showing that the risk-return relationship is dynamic and subject to changes over different investment horizons and in different market environments.

Place, publisher, year, edition, pages
2018. , p. 52
Keywords [en]
Adaptive markets hypothesis, risk-return trade-off, volatility anomaly, market environment
National Category
Business Administration
Identifiers
URN: urn:nbn:se:sh:diva-36388OAI: oai:DiVA.org:sh-36388DiVA, id: diva2:1248883
Subject / course
Business Studies
Uppsok
Social and Behavioural Science, Law
Supervisors
Examiners
Available from: 2018-09-18 Created: 2018-09-17 Last updated: 2018-11-02Bibliographically approved

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Adaptive Markets Hypothesis(724 kB)50 downloads
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CiteExportLink to record
Permanent link

Direct link
Cite
Citation style
  • apa
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • harvard-anglia-ruskin-university
  • apa-old-doi-prefix.csl
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf