Measuring the time-varying market efficiency in the prewar and wartime Japanese stock market, 1924–1943

This study examines the adaptive market hypothesis in the prewar and wartime Japanese stock market using a new market capitalization-weighted price index. First, we find that the degree of market efficiency varies over time and with major historical events. This implies that the hypothesis is supported in this market. Second, we find that the variation in market efficiency observed in this study is significantly different from that in previous studies. Finally, as government intervention in the market intensified throughout the 1930s, market efficiency declined as the war risk premium rose, especially from the time when the Pacific War became inevitable.