Heterogeneous Market Hypothesis in Major European Stock Exchanges

Abstract

The aim of this study is to investigate heterogeneous market efficiency in European stock exchanges using Augmented HAR-RV model. According to the heterogeneous market efficiency hypothesis, investors create portfolios according to different time horizons and different market situations may arise in the reflection of information on price. We find evidence of the validity of the heterogeneous market efficiency model in European stock exchanges. Investors interpret information differently at different time horizons. Medium- and long-term investment decisions are a major influence. These results help explain the volatility that may occur in different time horizons. Portfolio diversification should also be made according to different investments in different horizons. Short-term global volatility shock has been effective on European stock markets.