Maria Rosa Borges, Ph.D., Department of Economics, Technical University of Lisbon - Instituto Superior de Economia e Gestao, Rua Miguel Lupi, 20, Lisboa, 1249-078, Portugal
This paper reports the results of tests on the weak-form market efficiency in Western and Southern European Stock Markets in the last twenty years, between January 1988 and December 2007.
We use a runs test, a Dickey-Fuller test and the multiple variance ratio test proposed by
Lo and MacKinlay (1988) for the hypothesis that stock market indexes follow a random walk. The tests are performed using daily and weekly returns, both for the whole period, and for five-year sub-periods, to investigate whether efficiency has increased in the more recent years.
We also use the results of these tests to analyse and compare the efficiency levels of developed and emergent European stock markets. In the emerging stock markets, with low liquidity, it is unlikely to find that they are fully information-efficient, although the level of inefficiency should have declined in the most recent years, reflecting the increase in size and sophistication of those markets.