Testing Weak Form Market Efficiency for Emerging Economies: A Nonlinear Approach

Nazli C. Omay and Ece Karadagli

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper, we address weak form stock market efficiency of Emerging Economies, by testing whether the price series of these markets contain unit root. Nonlinear behavior of stock prices is well documented in the literature, and thus linear unit root tests may not be appropriate in this case. For this purpose, we employ the nonlinear unit root test procedure recently developed by Kapetanios et al. (2003) and nonlinear panel unit root test Ucar and Omay (2009) that has a better power than standard unit root tests when series under consideration are characterized by a slower speed of mean reversion. Large power gains are achieved through combining cross-sectional information and nonlinear estimation techniques in computing unit root tests. The results of ADF and PP indicate that Bulgarian, Greek, Hungarian, Polish, Romanian, Russian, Slovenian and Turkish stock markets are weak form efficient, while the results of nonlinear unit root test implies that Russian, Romanian and Polish stock markets are not weak form efficient. Moreover, the linear panel unit root test suggest that this group as all efficient where as nonlinear panel unit root test suggest as a group they are not efficient.

Keywords: Keywords: Linear and Nonlinear Unit root and Panel Unit Root; Emerging Markets; Market Efficiency (search for similar items in EconPapers)
JEL-codes: C01 C12 G14 (search for similar items in EconPapers)
Date: 2010-09-10
New Economics Papers: this item is included in nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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