Testing market efficiency of the emerging capital markets in countries of the Central and Eastern Europe


LEMESHKO Oleksandra

Rok publikování 2015
Druh Článek ve sborníku
Konference Enterprise and Competetive Environment 2015: Proceedings of the 18th Annual International Conference
Fakulta / Pracoviště MU

Ekonomicko-správní fakulta

Obor Řízení, správa a administrativa
Klíčová slova market efficiency; random walk; EMH; CEE
Popis Incorporation of all relevant information by stock prices in combination with investors’ rational expectations and utility maximization is the one of the fundamentals that the modern portfolio theory is based upon. This brings long-term equilibrium and ensures that no one can persistently beat the market. However, as it is mentioned, this is the state of things in the long-term horizon, which, as numerous evidence suggest, may not hold for short-term horizon. Additionally, violation of any one of the fundamentals, such as presence of investors’ herding behavior or information asymmetry makes the movement of stock prices to deviate from random walk pattern, thus providing a room for short-term outperformance. Up to date no absolutely efficient markets are known for world academic and investment community. The best know long-term approximation is represented by mature capital markets. As for emerging markets, so there is a long-term debate about their efficiency. Generally, emerging markets due to underdeveloped local economies, loose securities regulation, poor investors’ rights protection, political instability and high exposure to external shocks are considered as inefficient. In this context the role of capital markets of the Central and Eastern Europe is quite ambiguous: on one hand having among themselves high-income economies with stable political systems and being closely located to developed economies they are considered as remote types of mature capital markets with corresponding high-level efficiency, while, on the other hand, having among themselves middle-income economies, some of which are even not members of the European Union, thus being characterized as less developed economies with low level of political stability and low quality governance, they are characterized as emerging capital markets with corresponding low-level efficiency. In the light of stated above the paper aims to test market efficiency of the emerging capital markets in 11 high- and middle-income economies from the Central and Easter Europe (here and after CEE) for the time span from 2000 to 2015. Following established practice a set of standardized efficiency test will be employed and data from Bloomberg terminal will be used.
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