On the Evolution of the Stock Market Efficiency: Evidence From Emerging Markets

Abstract

The study of market efficiency is one of the most covered topics in the field of financial markets, with the Efficient Market Hypothesis gathering devotees as well as several critics. The perception of markets as agents with an adaptive nature gave rise to the Adaptive Market Hypothesis (AMH). This paper aims to combine this evolutionary view of market efficiency with the need to assess the behavior of emerging markets over the years. The empirical method selected was the Adjusted Market Inefficiency Magnitude. The sample consists of daily returns between 2005 and 2023 for six stock indices, namely the Indian (BSESN), Brazilian (BVSP), Chinese (CSI300), South African (JALSH), South Korean (KS11), and Taiwanese (TWII), representing the emerging economies bloc. Our findings show greater proximity to the efficiency framework proposed by the AMH, with the emerging markets evidencing an evolutionary behavior, combining a state of generalized efficiency with periods of remarkable inefficiency. Also, the observable synchronization between evolutionary moments and the occurrence of major economic events, both systemic and related to a particular economy, reinforces the need to frame the study of the efficiency of this category of markets within the global economic framework.