A study on the efficiency of the European stock market using quantile regression

Abstract

In our paper, we study the relationship between 6 developed European stock markets in order to come up with the efficiency level in the European market. One main stock market index was chosen in France, Germany, Spain, Switzerland, United Kingdom and Netherlands. The research is based on the daily return of each index over the period spread from 03 January 2012 until 11 November 2018, resulting with around 1,700 observations for each index. Our study and analysis are based on the quantile regression model, which was developed by Koenker and Basset Jr (1978) who were able to extend the ordinary least squared model and come up with what is called the quantile regression. This approach helps us investigate the autocorrelation over the whole dataset, leading us to a fruitful conditional information related to returns under study. In our study we used 2 lags only and showed that index returns in the European stock market are correlated. Moreover, the study showed that the European stock market is inefficient at the low and high quantiles and efficient on midlevel quantiles.