An Empirical Analysis of the Efficient Market Hypothesis In Light of the 2008 Financial Crisis

Open Access
Johnson, Douglas M
Area of Honors:
Bachelor of Science
Document Type:
Thesis Supervisors:
  • Russell Paul Chuderewicz, Thesis Supervisor
  • David Shapiro, Honors Advisor
  • Efficient Market Hypothesis
  • Financial Crisis
In this thesis, I investigate the validity of the efficient market hypothesis during the period surrounding the financial crisis of 2008 with a focus on efficiency in United States financial markets. The empirical analysis employs several different econometric methods investigating the random walk model and the martingale process. The thesis evaluates the implications of non-stationary time series on market efficiency employing the augmented Dickey-Fuller unit root test. I then conduct Lo and MacKinlay variance ratio tests on the same data to test whether returns exhibit a martingale process consistent with the efficient market theory. For the most part, my results are consistent with the efficient market hypothesis, but we do find cases where returns exhibit mean reversion or momentum, properties that violate the efficient market theory.