Weak-form market efficiency in European emerging and developed stock markets

Andrew C. Worthington · Helen Higgs

43 citations0/0 files storedRePEc: Research Papers in Economics

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Financial Markets and Investment Strategies Financial Risk and Volatility Modeling Stock Market Forecasting Methods

Abstract

This paper tests for random walks and weak-form market efficiency in European equity markets. Daily returns for sixteen developed markets (Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom) and four emerging markets (Czech Republic, Hungary, Poland and Russia) are examined for random walks using a combination of serial correlation coefficient and runs tests, Augmented Dickey-Fuller (ADF), Phillips-Perron (PP) and Kwiatkowski, Phillips, Schmidt and Shin (KPSS) unit root tests and multiple variance ratio (MVR) tests. The results, which are in broad agreement across the approaches employed, indicate that of the emerging markets only Hungary is characterized by a random walk and hence is weak-form efficient, while in the developed markets only Germany, Ireland, Portugal, Sweden and the United Kingdom comply with the most stringent random walk criteria.

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References

2012The Econometrics of Financial Markets 1988Stock Market Prices Do Not Follow Random Walks: Evidence from a Simple Specification Test 1993A simple multiple variance ratio test 1995TESTS OF RANDOM WALK AND MARKET EFFICIENCY FOR LATIN AMERICAN EMERGING EQUITY MARKETS 2002Testing the Random Walk Behavior and Efficiency of the Gulf Stock Markets 2002Return predictability in African stock markets 2002African stock markets: multiple variance ratio tests of random walks 2001STOCK RETURNS AND VOLATILITY ON CHINA'S STOCK MARKETS

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