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Market efficiency of the Post Communist East European stock markets

Victor Dragotă () and Elena Tilica ()

Central European Journal of Operations Research, 2014, vol. 22, issue 2, 307-337

Abstract: The stock markets from Post Communist East-European Countries are still considered highly speculative. For this reason, the previously performed tests often infirmed the efficient market hypothesis. However, especially in the past years, different studies revealed an improvement in the level of efficiency. In this context, our paper has tested the predictability of returns based on past records (as a proxy for the weak-form efficiency) for the market index and the most important stocks of 20 East European former communist countries: Bosnia-Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Georgia, Hungary, Kazakhstan, Latvia, Lithuania, Former Yugoslav Republic of Macedonia, Moldova, Montenegro, Poland, Romania, Russia, Serbia, Slovakia, Slovenia, and Ukraine, for the period January 2008–December 2010, a period of financial crisis for most of these countries. Various methods for testing were used (unit root tests, runs test, variance ratio test, filter rules test and the January Effect). The tests have revealed that for some assets the efficient market hypothesis cannot be rejected. However, the results have shown that there are serious doubts concerning the stock market efficiency for all the countries in the analyzed period. Moreover, heterogeneity between the results for different countries was revealed. A higher level of market efficiency can suggest to decision-makers the use of passive portfolio management techniques while a lower level of efficiency implies the use of active portfolio management instruments. Copyright Springer-Verlag Berlin Heidelberg 2014

Keywords: Efficient markets hypothesis (EMH); Weak form EMH; Emerging markets; Capital markets; Post Communist Eastern European Countries; Financial crisis (search for similar items in EconPapers)
Date: 2014
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Handle: RePEc:spr:cejnor:v:22:y:2014:i:2:p:307-337