The Evolution of Market Efficiency: 103 Years Daily Data of the Dow

  • Anthony Yanxiang Gu
  • Joseph Finnerty

DOI: 10.1023/A:1015300817043

Cite this article as:
Gu, A.Y. & Finnerty, J. Review of Quantitative Finance and Accounting (2002) 18: 219. doi:10.1023/A:1015300817043


Autocorrelation in daily returns of the Dow 30 Index fluctuates significantly over time and reveals a declining trend after World War II. The relation between autocorrelation and volatility is negative and nonlinear. The relation between autocorrelation and volume is also negative and nonlinear. Returns exhibit positive autocorrelation during years with higher autocorrelation, and negative autocorrelation during years with lower autocorrelation. Positive autocorrelation appears more frequently during periods of low volatility, while negative autocorrelation appears more frequently during periods of high volatility. Current period's autocorrelation is related to previous period's autocorrelation and to both the previous and the current period's volatility and rate of return, which implies that investors incorporate previous period's pattern of market behavior into their trading strategy.

autocorrelation evolution market efficiency 

Copyright information

© Kluwer Academic Publishers 2002

Authors and Affiliations

  • Anthony Yanxiang Gu
    • 1
  • Joseph Finnerty
    • 2
  1. 1.State University of New YorkGeneseo
  2. 2.The University of Illinois at Urbana-ChampaignUSA