REVISITING THE (IN) EFFICIENCY OF EMERGING STOCK MARKETS
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Previous evidence on market efficiency in emerging economies could be tainted h_v the presence of' rhin trading and price non-linearity. We examine the impact of' thin trading hy decomposing weekly stock returns into permanent and cyclical components and then su~ject the permanenr component (correct index; to a battery of efficiency diagnostic tests: and account j(Jr price non-linearitv b_v modeling stock returns in rhe context of an EGARCH-in-mean Our results from week~v returns in twenty emerging markets are unanimous in rejecting efficiency in all markets after adjustments for thin trading and price non-lineari~v. We also find evidence that regulatory ref<mns have enhanced market ejjicienc_v but only in some of the sampled markets. implying that emerging markets can benefit from further regulatory changes. Until then. though. several emerging markets remain a potential lucrative so,1rce ofarhitrage opportunities for international investors
Abstract
Previous evidence on market efficiency in emerging economies could be tainted h_v the presence of' rhin trading and price non-linearity. We examine the impact of' thin trading hy decomposing weekly stock returns into permanent and cyclical components and then su~ject the permanenr component (correct index; to a battery of efficiency diagnostic tests: and account j(Jr price non-linearitv b_v modeling stock returns in rhe context of an EGARCH-in-mean Our results from week~v returns in twenty emerging markets are unanimous in rejecting efficiency in all markets after adjustments for thin trading and price non-lineari~v. We also find evidence that regulatory ref<mns have enhanced market ejjicienc_v but only in some of the sampled markets. implying that emerging markets can benefit from further regulatory changes. Until then. though. several emerging markets remain a potential lucrative so,1rce ofarhitrage opportunities for international investors
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