The purpose of this paper is to investigate whether the Australian equity market is informationally efficient in the semi‐strong form with regard to interest rates and the exchange rate shocks during the period 1994‐2006.
There is evidence that the data are non‐normal and that autoregressive conditional heteroskedasticity (ARCH) effects exist and in such circumstances, standard estimation methods are not reliable. A new method introduced by Hacker and Hatemi‐J which is robust to non‐normality and the presence of ARCH is applied.
The results show the Australian equity market is not informationally efficient with regard to either the interest rate or the exchange rate.
The empirical findings, in contrast to several previous studies, imply that the possibility for arbitrage profits in the equity market might exist.
