Capital Markets clustering: An econometric approach

1 Trabalho de projecto apresentado como requisito parcial para a obtenção do grau de without whose help the data collection would have been impossible. I would especially like to thank all my friends, Catarina Rodrigues, my brother, my sister, my father and my mother for their support and inspiration. Abstract Keywords: market efficiency, random walk, fair game, liquidity P. Samuelson and later in the 60's E. Fama presented the Efficient Market Hypothesis Model which is still referred to in discussion of financial efficiency. Later, Mandelbrot observed that large (small) price changes in the capital markets were usually followed by large (small) price changes. The result is that volatility comes together around certain periods in time. Using an econometric approach, this project uses financial data of the Portuguese, Spanish and UK capital markets to prove that this effect is statistically significant while providing some reasoning regarding its origins and consequences and their relation to market liquidity.