Abstract
<p>The purpose of this article is to examine how the weak-form efficiency of the European stock markets has changed over the years. The study focuses its attention not on answering the question if the markets were efficient but on explaining how efficiency evolved. With a process based on the random walk model proposed by Louis Bachelier in 1900 still commonly applied in this research, market efficiency was examined using three different tests of the normality of the distribution for the returns of 20 selected European stock market indexes. The tests were performed for each year and for additional two-year sub-periods during the 20-year research period (1999–2018). Moreover, the tests were run for one-, two-, three- and four-day returns’ intervals. The study allowed for a partial rejection of the research hypothesis, finding that on a long-term basis the efficiency of European stock markets tends to improve. Indeed, the results indicate that overall efficiency tended to improve but only since the end of the 2008 global financial crisis. From the very beginning of the research period until 2008, overall efficiency was shown to decrease.</p>
Highlights
Even though studies on weak-form market efficiency are conducted in many markets all over the world, their attention is mainly focused on answering the question of whether or not the markets are efficient
Based on the random walk model proposed by Louis Bachelier in 1900, market efficiency was examined using three different tests of the normality of the distribution for the returns of 20 selected European stock
The results of this study allow for a partial rejection of the research hypothesis, which stated that the efficiency of the European stock markets tended to improve over the long term
Summary
Even though studies on weak-form market efficiency are conducted in many markets all over the world, their attention is mainly focused on answering the question of whether or not the markets are efficient. Policymakers would need to know if the implemented financial reforms and regulations will positively influence market efficiency, as its efficiency increases investors’ confidence in the markets and protects the markets from external shocks (Mensi, Tiwari, & Al-Yahyaee, 2019). C The purpose of this article is to examine how the weak-form efficiency of European stock markets have changed over the years. The study focuses its attention not on answering the question whether the markets were efficient but on explaining how the efficiency has evolved over the years. Based on the random walk model proposed by Louis Bachelier in 1900, market efficiency was examined using three different tests of the normality of the distribution for the returns of 20 selected European stock
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