Is There a Relationship between Country Classification and Market Efficiency?: A Global Investigation

Kırkulak Uludağ B., Ezzat H.

Doğuş Üniversitesi Dergisi, vol.18, no.1, 2017 (Peer-Reviewed Journal)


The objective of this paper is to test the Efficient Market Hypothesis
(EMH) for countries at different economic development levels. The FTSE Country
Classification was used to reveal the economic development of 17 developed and 12
emerging markets. The sampling period is between 2005 and 2013. In order to test
market efficiency, Portmanteau Q test, the runs test, the single and multiple variance
ratio (VR) tests were used. The results show that the weak-form market efficiency is
becoming prevalent in the Advanced Emerging markets. The striking finding of the
paper presents that the market efficiency is associated with the market evolution. As
the economies and markets of countries evolve and meet the criteria for promotion to
upper country classification, they become weak-form efficient. Further, the findings
reveal the facts that the markets which suffer from severe financial and political crises,
or belong to low ranked emerging markets are unlikely to be efficient.