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Evolving Market Efficiency with an Application to Some Bulgarian Shares

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  • Rebecca Emerson
  • Stephen G. Hall
  • Anna Zalewska-Mitura

Abstract

With new technically advanced methods and computers at our disposal, the efficient market hypothesis is once again being debated. At the same time, we are witnessing an unprecedented growth in both existing and new financial markets. These new markets are often in economies which have just recently embraced free market economics; we term these stock markets infant markets. Such stock markets are obviously not efficient in allocating the supply of savings to productive capital. We do not test whether or not these infant markets are informationally efficient, but instead examine whether and how they are becoming more efficient. We propose modelling the excess returns of individual securities using a multi-factor model with time-varying coefficients and generalised auto-regressive conditional heteroskedastic (GARCH) errors. If the markets are becoming more informationally efficient or the agents are learning, we would expect this to manifest itself as the time-varying coefficients becoming more stable as time increases. We test our model using data on four Bulgarian shares. First, we estimate an AR(2) model and a GARCH-M(1,1) model for the shares. Then, we estimated our AR(2) model with time varying coefficients and GARCH type errors. We find varying levels of efficiency and varying speeds of movement towards efficiency within our sample of four shares. Copyright Kluwer Academic Publishers 1997
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Suggested Citation

  • Rebecca Emerson & Stephen G. Hall & Anna Zalewska-Mitura, "undated". "Evolving Market Efficiency with an Application to Some Bulgarian Shares," Ace Project Memoranda 96/18, Department of Economics, University of Leicester.
  • Handle: RePEc:wuk:leiapm:96/18
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    References listed on IDEAS

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    1. Hall, Stephen G & Miles, David K, 1992. "Measuring Efficiency and Risk in the Major Bond Markets," Oxford Economic Papers, Oxford University Press, vol. 44(4), pages 599-625, October.
    2. Dwyer, Gerald Jr. & Wallace, Myles S., 1992. "Cointegration and market efficiency," Journal of International Money and Finance, Elsevier, vol. 11(4), pages 318-327, August.
    3. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
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