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Testing the Informational Efficiency on the Romanian Financial Market

Author

Listed:
  • Bogdan Dima
  • Marilen Pirtea
  • Aurora Murgea

    (Universitatea de Vest Timisoara)

Abstract

The classical models of portfolio selection could not be applied on a market were the efficient market hypothesis is not valid (at least in a "weak" sense). The aim of this paper is to enlighten the difficulties of portfolio construction in a financial market with institutional and structural deficiencies, like the Romanian one, and to propose an alternative approach to the problem. The main features of our analysis are: 1) an empirical test for the efficient market hypothesis in the Romanian financial market case; 2) a critical distinction between the concept of "risk" and the concept of "incertitude"; 3) the use of the individual yield/risk ratio versus the market one as a selection variable; 4) the renouncement at the use in the selection procedure of an "non-risky" asset; 5) an example of the proposed selection procedure. The output of this approach could be resumed by the thesis that, even in a situation when the financial market is affected by severe disfunctions, there is a possibility to build an "optimal" portfolio based on a yield-risk arbitrage inside an efficiency frontier and to obtain a "good" schema of an financial placement, in spite of the limited possibilities for a efficient portfolio management.

Suggested Citation

  • Bogdan Dima & Marilen Pirtea & Aurora Murgea, 2006. "Testing the Informational Efficiency on the Romanian Financial Market," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 1(1(496)), pages 43-47, March.
  • Handle: RePEc:agr:journl:v:1(496):y:2006:i:1(496):p:43-47
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    Cited by:

    1. Victor Dragotă & Elena Ţilică, 2014. "Market efficiency of the Post Communist East European stock markets," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 22(2), pages 307-337, June.
    2. repec:eee:phsmap:v:505:y:2018:i:c:p:454-470 is not listed on IDEAS

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