Ranking efficiency for twenty-six emerging stock markets and financial crisis: Evidence from the shannon entropy approach

Abstract

In this paper the evolution of a weak-form efficiency for twenty six emerging stock markets is tested. To do this, a modified Shannon entropy and a Symbolic Time Series Analysis are employed over the period September 1997 to November 2007. A regression is performed for time windows with 100 observations and a rolling sample approach. The empirical results show that stock market efficiency changes over time and differs from one market to another and across geographic areas. For example, the Argentinian market is a more efficient market whereas the Tunisian stock market is less efficient. The inefficiency in stock markets is dynamic. Furthermore, a negative relationship was found between the financial crisis and stock market efficiency. The findings of this evolving market efficiency may be attributed to microstructure variables. These results have several implications for stock portfolio hedgers and policy makers.