A measure for asset market efficiency

What is it about?

The article identifies reasons for bubbles in asset markets and evaluates tests that aim to highlight bubbles. It also provides a measure for asset market efficiency which is defined as how often the market deviates from an efficient state, where efficiency is to be understood as weak form market efficiency and deviations could either be through bubbles or through mean reversion.

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Why is it important?

The article takes a unique view towards market efficiency; whereas previously efficiency has been treated in a binary way, we treat efficiency as a state, so that asset markets behave efficiently some times and inefficiently at others. The article also provides analytical formulae for estimating statistics for threshold autoregressive models; some of these formulae have not been derived previously.