When Are Stock Markets Predictable? Evidence Across Time, Firm Size, and Market Development

Stock market efficiency is often tested by asking whether past returns help predict future returns. The Adaptive Markets Hypothesis suggests that this predictability may change as investors respond to new conditions. This article uses variance ratio tests to examine how short-term return predictability varies across decades, firm sizes, major market events, and developed, emerging, and frontier markets. Decade-by-decade analysis of large-cap, medium cap and small-cap U.S. stocks from the 1960s through the 2020s assess whether predictability follows a steady trend over time. A lead–lag analysis tests whether large-cap returns help pre- dict subsequent small-cap returns. The international comparison examines whether markets differ in their responses to major shocks and how quickly their earlier patterns return.