Individual and Regional Efficiency in Emerging Stock Markets: Empirical Investigations
Individual and Regional Efficiency in Emerging Stock Markets: Empirical Investigations

Summary/Abstract: Since an investor could earn abnormal profit, understanding the efficiency of stock markets, particularly the emerging ones, is gaining importance with their integration with the developed markets. In this paper I attempt to test the weak form of the efficient market hypothesis for Central and Eastern European (CEE) stock markets: Romania, Hungary, Croatia, Czech Republic and Poland. In this respect, it was used specific tests (unit root, joint variance ratio test, non-parametric runs test) which are performed using daily data for stock market indexes for the period September 1997– September 2014. According to joint variance tests and Johansen cointegration test, one can argue the CEE stock markets do not exhibit weak form efficiency, both as individual and regional stock market. Non-parametric Runs test suggest that for two out of five countries (Romania, Czech Republic) the successive returns are not independent, i.e. an opportunity to earn excess return using historical prices. Runs test was employed in-depth for specific sub- samples and lead to the conclusion that efficiency is a characteristic that varies over time and across markets, consistent with adaptive market hypothesis.

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