The Influence of Uncertainty on Market Efficiency: Evidence from Selected European Financial Markets
The Influence of Uncertainty on Market Efficiency: Evidence from Selected European Financial Markets

Summary/Abstract: The purpose of this study is to determine if the capital markets of fourteen European countries are efficient or not. Additionally, we examine the impact of VIX and GEPU returns on the market efficiency of the analyzed capital markets. We apply the Augmented Dickey-Fuller (ADF) test and Threshold GARCH (TGARCH) Model. The period under examination is 2003-2016. Our results show that the explored European markets are highly integrated, and in the context of the Efficient Market Hypothesis (EMH), a division along the line of the developed-developing market has been revealed. The Bulgarian capital market shows a strong degree of integration with the other explored economies in the conditions of EMH. The efficiency of the explored markets is improved by adding to the model VIX and GEPU returns. We prove that diversification can be achieved based on emerging markets of the EU Member States. Prolonged periods of low volatility can further reduce correlations, encouraging further risk-taking.

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