Guidi, Francesco and Gupta, Rakesh and Maheshwari, Suneel (2010): Weak-form market efficiency and calendar anomalies for Eastern Europe equity markets.
Download (584kB) | Preview
In this paper we test the weak form of the efficient market hypothesis for Central and Eastern Europe (CEE) equity markets for the period 1999-2009. To test weak form efficiency in the markets this study uses, autocorrelation analysis, runs test, and variance ratio test. We find that stock markets of the Central and Eastern Europe do not follow a random walk process. This is an important finding for the CEE markets as an informed investor can identify mispriced assets in the markets by studying the past prices in these markets. We also test the presence of daily anomalies for the same group of stock markets using a basic model and a more advanced Generalized Autoregressive Conditional Heteroskedasticity in Mean (GARCH-M) model. Results indicate that day-of-the-week effect is not evident in most markets except for some. Overall results indicate that some of these markets are not weak form efficient and an informed investor can make abnormal profits by studying the past prices of the assets in these markets.
|Item Type:||MPRA Paper|
|Original Title:||Weak-form market efficiency and calendar anomalies for Eastern Europe equity markets|
|Keywords:||Emerging stock markets, day-of-the-week effect , market efficiency, variance ratio test, GARCH-M.|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency; Event Studies
G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
|Depositing User:||Francesco Guidi|
|Date Deposited:||09. Apr 2010 20:19|
|Last Modified:||12. Feb 2013 13:12|
Abraham, A., F.J Seyyed and S.A. Alsakran (2002), ‘Testing the Random Walk Behaviour and Efficiency of the Gulf Stock Markets’, The Financial Review, 37: 469-80.
Agarwal, A. and D. Tandon (1994), ‘Anomalies or Illusions? Evidence from stock markets in eighteen countries’, Journal of International Money and Finance, 13: 83-106.
Al-Khazali, O.M., K.D Ding and C.S. Pyun (2008), ‘A New Variance Ratio Test of Random Walk in Emerging Markets: A Revisit’, The Financial Review, 42 (2): 303-17.
Al-Loughani, N. and D. Chappell (2001), ‘Modelling the day-of-the-week effect in the Kuwait Stock Exchange: a non-linear GARCH representation’, Applied Financial Economics, 11: 353-59.
Athanassakos, G. and M.J. Robinson (1994), ‘The Day of the Week Anomaly: The Toronto Stock Exchange Experience’, Journal of Business Finance & Accounting, 21: 833-56.
Bhattacharya, K., N. Sarkar and D. Mukhopadhyay (2003), ‘Stability of the day of the week effect in return and in volatility at the Indian capital market: a GARCH approach with proper mean specification’, Applied Financial Economics, 13: 553-63.
Bollerslev, T. (1987), ‘A conditional heteroscedastic time series model for speculative prices and rates of return’, Review of Economics and Statistics, 69: 542-47.
Board, J.L. and C.M. Sutcliffe (1988), ‘The Weekend Effect in UK Stock Market Returns’, Journal of Business Finance & Accounting, 15: 199-213.
Broch, W.A., W.D. Dechert, B. Lebaron, and J.A. Scheinkman (1996), ‚A test for the independence based on the correlation dimension’, Econometric Reviews, 15 (3): 197-235.
Campbell, J.Y., A.W Lo and A.C MacKinlay (1997), The Econometrics of Financial Markets. Princeton: Princeton University Press.
Cartensen, K. and F. Toubal (2004), ‘Foreign Direct Investment in Central and Eastern Europe Countries: A Dynamic Panel Analysis’, Journal of Comparative Economics, 32: 3-22.
Chang, K.P. and K.S. Ting (2000), ‘A Variance Ratio Test of the Random Walk Hypothesis for Taiwan’s Stock Markets’, Applied Financial Economics, 10: 525-32.
Chakraborty, M. (2006), ‘Market Efficiency for the Pakistan Stock Market’, South Asia Economic Journal, 7 (1): 67-81.
Chun, R.M. (2000), ‘Compensation Vouchers and Equity Markets: Evidence from Hungary’, Journal of Banking and Finance, 24: 1155-78.
Choudhry, T. (2000), ‘Day of the week effect in emerging Asian stock markets: evidence from the GARCH model’, Applied Economics Letters, 10: 235-42.
Fama, E.F. (1970), ‘Efficient Capital Markets: A Review of Theory and Empirical Work’, Journal of Finance, 25: 383-417.
Fama, E.F. (1991), ‘Efficient capital markets: II’, Journal of Finance, 96: 1575-1617.
Fortune, P. (1991), ‘Stock market efficiency: an autopsy?’, New England Economic Review, March, 17-40.
French, K. (1980), ‘Stock returns and the weekend effect’, Journal of Financial Economics, 8: 55-69.
Gilmore, G.C. and M.G McManus (2003), ‘Random-walk and efficiency tests of Central European equity markets’, Journal of Managerial Finance, 29 (4): 42-61.
Grieb, T. and M.G. Reyes (1999), ‘Random Walk Tests for Latin American Equity Indexes and Individual Firms’, Journal of Financial Research, 22: 371-83.
Gupta, R. (2006), ‘Emerging Market Diversification: Are Correlations Changing Over Time? in International Academy of Business and Public Administration Disciplines (IABPAD) Conference, January 3-6, 2006. Orlando
Gupta, R. and P.K. Basu (2007), Weak Form Efficiency in Indian Stock Markets, International Business & Economics Research Journal, 6 (3): 57-64.
Kenourgios D. and A. Samitas (2008), ‘The Day of the week effects patterns on Stock Markets returns and Volatility: Evidence for the Athens Stock Exchange’, International Research Journal of Finance and Economics, 15: 78-89.
Kim, J.H. and A. Shamsuddin (2008), ‘Are Asian stock markets efficient? Evidence from new multiple variance ratio test’, Journal of Empirical Finance, 15 (3): 518-32.
Lo, A.W. and A.C MacKinlay (1988), ‘Stock Market Prices do not Follow Random Walks: Evidence from a Simple Specification Test’, Review of Financial Studies, 1: 41-66.
Mobarek, A., A.S. Mollah and A.S Bhuyan (2008), ‘Market Efficiency in Emerging Stock Market’, Journal of Emerging Market Finance, 7: 17-41.
Nivet, J.F. (1997), ‘Stock Markets in Transition: The Warsaw Experiment’, Economics of Transition, 5: 171-83.
Ojah, K. and D. Karemera (1999), ‘Random walks and market efficiency tests for Latin American Emerging equity markets: a revisit’, The Financial Review, 34 (1): 57-72.
Poshakwale, S. and V. Murinde (2001), ‘Modelling volatility in East European emerging markets: evidence on Hungary and Poland’, Applied Financial Economics, 11: 445-56.
Rockinger, M. and G. Urga (2000), ‘The Evolution of Stock Markets in Transition Economies’, Journal of Comparative Economics, 28: 456-72.
Summers, L.H. (1986), ‘Does the Stock Market Rationally Reflect Fundamental Values?’ Journal of Finance, 41: 591-601.
Urrutia, J.L. (1995), ‘Test of Random Walk and Market Efficiency for Latin American Emerging Equity Markets’, Journal of Financial Research, 18: 299-309.
Will, M. (2006), ‘The Role of Performances in an Accounting Scandal: An insider’s Perspective on How Things Went Wrong’, Proceedings of the 5th Global Conference on Business & Economics, Cambridge University, UK, Paper No. 152.
Wolff, G.B. (2006), ‘Foreign direct investment in the enlarged EU: do taxes matter and to what extent’, Deutsche Bundesbank, Discussion Paper Series 1, Economic Studies, No 13, pp. 1-60.
Worthington, A.C. and H. Higgs (2004), ‘Random walks and market efficiency in European equity markets’, Global Journal of Finance and Economics, 1: 59-78.
Worthington, A.C. and Higgs H. (2008), ‘Tests of random walks and market efficiency in Latin America Stock Markets: an empirical notes’, working paper No 157, School of Economics and Finance, Queensland University of Technology.
Wright, J.H. (2000), ‘Alternative variance-Ratio Tests Using Ranks and Signs’, Journal of Business and Economics, 18: 1-9.