The Extent of Efficiency in Central European Equity Markets

Abstract

This paper investigates the possibility that the newly emerging equity markets in Central Europe exhibit a degree of efficiency similar to that which prevails in more developed markets. The different privatization strategies adopted by the various countries in the region are shown to have created equity markets of vastly different sizes, with the largest market, that in the Czech Republic, being similar in coverage to many in Western Europe. Disclosure requirements appear to be sufficient for efficiency although there are differences across countries in whether these requirements are based in law or depend on voluntary action, as well as the extent to which they are enforced. Both distribution based and distribution-free tests do not reject the hypothesis that equity market returns are random walks in the four Visegrad countries. This finding is consistent with these markets being weak-form efficient. The paper concludes with a discussion of ways in which other forms of efficiency could be tested for these markets.