Weak-Form Market Efficiency and Calendar Anomalies for Eastern European Equity Markets

Abstract

In this article we test the weak form of the efficient market hypothesis for Central and Eastern Europe (CEE) equity markets for the period 1999-2009. To test weak-form efficiency in the markets, this study uses autocorrelation analysis runs test and variance ratio test. We find that stock markets of the CEE do not follow a random walk process. This is an important finding for the CEE markets as an informed investor can identify mispriced assets in the markets by studying the past prices in these markets. We also test the presence of daily anomalies for the same group of stock markets using a basic model and a more advanced Generalised Autoregressive Conditional Heteroscedasticity in Mean (GARCH-M) model. Results indicate that day-of-the-week effect is not evident in most markets except for some. Overall results indicate that some of these markets are not weak and an efficient and informed investor can make abnormal profits by studying the past prices of the assets in these markets.

Keywords: Emerging stock markets, day-of-the-week effect, market efficiency, variance ratio test, GARCH-M

JEL Classification: G12, G14, G22