Testing the efficiency of emerging markets: Evidence from nonlinear panel unit tests

Abstract

In this study, we investigate market efficiency considering nonlinearities by testing the weak-form market efficiency of the stock markets of Brazil, China, Russia, Turkey, and South Africa using recently proposed nonlinear panel unit root tests. The stock markets of these emerging countries are deliberately selected for their market capitalization to form a homogenous panel. The results of nonlinear models indicate that the stock market indexes are stationary and weak-form inefficient. This finding contributes to the contradictory results of the prior research using linear and nonlinear models about the efficiency of emerging stock markets in favor of nonlinear ones. Furthermore, we propose that studies using financial variables consider such nonlinearity in order to achieve more accuracy in findings related to such studies.

The Green Engine of Growth: Assessing the Influence of Renewable Energy Consumption and Environmental Policy on China’s Economic Sustainability

“…This test examines a dataset across a spectrum of embedding dimensions, ranging from two to six, offering a nuanced analysis of the data's stochastic nature. The BDS test stands out among alternative methodologies for its ability to enhance analytical rigor, as noted by Turguttopbaş and Omay [160] and Hasanov et al [161]. Its principal advantages include the mitigation of model misspecification errors and the reduction of biases stemming from subjective judgment.…”

Assessing market efficiency in Palestine Securities Exchange (PSE) market at weak form: Analysis from 2010–2022

“…Additionally, investors in developing countries often have to contend with unreliable information and high volatility at multiple political, economic, and social levels (Alkhatib & Harasheh, 2014). Several studies confirm the inefficiency of emerging markets (Nguyen & Parsons, 2021;Sadat & Hasan, 2019;Turguttopbas, 2021). Emerging markets lack full integration with world capital markets, and investors could earn arbitrage profits from market inefficiency in these countries.…”

“…The market efficiency at the weak level of Brazil, China, Russia, Turkey, and South Africa stock markets was subject to testing. Turguttopbas (2021) uses nonlinear statistical methods to test market efficiency at a weak level for these markets and found that the stock market indices in these countries are stationary and inefficient at weak levels. Furthermore, Dias et al (2020) (Miloş et al, 2020).…”