Proceedings

attempt to predict future prices, nor even fundamental analysis, which is the analysis
of financial information such as company earnings, asset values, etc., to help investors
select “undervalued” stocks, would enable an investor to achieve returns greater than
those that could be obtained by holding a randomly selected portfolio of individual
stocks with comparable risk (Malkiel, 2003).
Based on such views, the goals of this paper are: 1) to empirical evaluate the
informational efficiency for three major financial markets – the United States of
America, Japan and the United Kingdom – in the context of current real and financial
turbulence; 2) to debate over the implications of IFRS adoption on the respective
market informational efficiency.
The paper is structured as follows: the next section review the conceptual framework
of Efficient Market Hypothesis, discussing some recent critics as this are synthesized
by so called Adaptive Market Hypothesis. Section 2 debates the implications that
IFRS adoption might have on market efficiency. Section 3 describes the data and the
methodology. Section 4 reports the results. Some conclusions are drawn and some
further research directions are suggested in section 5.
1. A CRITICAL ASSESSMENT OF THE EFFICIENT MARKET
HYPOTHESIS
In regard to the assessment of market efficiency there are two main approaches: the
first is represented by the “efficient market hypothesis” (EMH) as it was initially
defined by Fama (1965; 1970; 1991): information is “perfect” and the “rational”
economic subjects collect and use in a systematic and logic manner this information,
the prices of the financial assets are based on fundamentally efficient mechanisms.
The second one refers to the “adaptive market hypothesis” (AMH) when information
is “imperfect” and the economic subjects make portfolio management decisions in a
“partially rational” manner (Lo [2004; 2005]).
For a long time EMH has represented a dominant model in explaining the asset price
formation (Beechey et. al., 2000), among others because until AMH emerged there
was no viable alternative (Zhang, 1999). According to EMH since the information is
“perfect”, it is assumed that there are no significant cases of informational asymmetry,
non-uniformly distributed, costly and partially relevant information. Grossman (1976)
and Grossman and Stiglitz (1980) argue that perfectly informational efficient markets
are an impossibility, because if markets are perfectly efficient, the return to gathering
information is nil, in which case there would be little reason to trade and markets
would eventually collapse.
The EMH for common stocks has received significant empirical support in the past,
and as noted by Jensen (1978: 95), “there is no other proposition in economics which
has more solid empirical evidence supporting it than the Efficient Market
Hypothesis”.
Lo and McKinlay (2001) argue that EMH by itself is not a well-defined and
empirically irrefutable hypothesis. To make it operational, one must specify additional
structure, e.g. investors preferences, information structure, business conditions, etc.
But then a test of EMH becomes a test of several auxiliary hypotheses as well, and a
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