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Volume 58, Issue 5 -6

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Estimating the Dynamics of Weak Efficiency on the Prague Stock Exchange Using the Kalman Filter

Pošta, Vít

Year: 2008   Volume: 58   Issue: 5 -6   Pages: 248-260

Abstract: The paper builds on the martingale representation of the market efficiency hypothesis and, with the use of an E-GARCH model of the volatility of the PX and PX-GLOBAL daily returns, a state-space model is formulated. Using the Kalman filter, the time-varying dependency of the daily returns on their lagged values is estimated. The estimation of this parameter shows how quickly the Prague Stock Exchange, represented by its PX index and PX-GLOBAL index, has gradually moved toward the condition of weak efficiency.

JEL classification: C22, D53, G14

Keywords: GARCH, Kalman filter, martingale, weak-efficiency

DOI:

RePEc: http://ideas.repec.org/a/fau/fauart/v58y2008i5-6p248-260.html

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