Testing the Efficiency of Emerging Markets: Evidence from Nonlinear Panel Unit Tests
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.
Keywords: Market efficiency, stock market, weak-form efficiency, ESTAR models.