Efficiency of the Moscow Stock Exchange before 2022

Area of Science:

• * Financial Markets Analysis
• * Econometrics
• * Information Theory

Background:

• * Market efficiency is crucial for fair asset pricing, where prices reflect all available information.
• * Previous studies on emerging markets like the Moscow Stock Exchange (MOEX) often show varying degrees of efficiency.
• * Understanding market efficiency helps in developing investment and trading strategies.

Purpose of the Study:

• * To investigate and quantify the degree of market efficiency for the Moscow Stock Exchange (MOEX) from 2012 to 2021.
• * To identify specific time periods and factors contributing to market inefficiency.
• * To assess the potential for developing profitable trading strategies based on detected inefficiencies.

Main Methods:

• * Developed a novel method to estimate volatility and price staleness for filtering financial data.
• * Calculated market efficiency using Shannon entropy on filtered return time series.
• * Employed Kullback-Leibler distance and a new entropy metric for stock co-movements, validated with Monte Carlo simulations.

Main Results:

• * The Moscow Stock Exchange (MOEX) demonstrated a significantly low degree of market efficiency across most months between 2012 and 2021.
• * Identified specific time periods of market inefficiency for a portfolio of 18 stocks.
• * Stock inefficiency levels were found to be dependent on their respective industrial sectors.

Conclusions:

• * The detected inefficiency suggests opportunities for devising profitable trading strategies on the Moscow Stock Exchange (MOEX), even after accounting for transaction costs.
• * Market inefficiency is not uniform and varies significantly across different time frames and industrial sectors.
• * The developed entropy-based methodology provides a robust tool for assessing market efficiency in empirical financial data.