INEFFICIENT STOCK MARKETS AND THEIR IMPLICATIONS IN THE CONTEXT OF EXTREME FINANCIAL EVENTS: A THEORETICAL FRAMEWORK

Abstract

The main objective of this research article is to investigate the concept of inefficient stock markets and their implications in the context of extreme financial events. The presence of correlations in the case of financial asset returns may be caused by a partial incorporation of information which generates a certain predictability of the stock markets behaviour. In other words, this aspect explains the inefficiency of the stock markets. This research paper also examined the impact of investment strategies based on international portfolio diversification. Moreover, in the context of market inefficiency, we analyzed the concept of Adjusted Market Inefficiency Magnitude (AMIM)

Keywords

• stock market
• returns
• efficient market hypothesis
• stock market inefficiency
• noise
• global financial crisis (gfc)
• covid-19 pandemic