Testing efficient market hypothesis in developing Eastern European countries


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This paper analyzes financial markets in four developing countries (Croatia, Serbia, Slovenia, Slovakia) using daily returns of their respective stock market indices from January 1, 2006 till December 31, 2016, timeframe which was rarely analyzed. Analysis was conducted by various statistical tests, more precisely serial correlation test, runs test, Augmented Dickey-Fuller test, unit root test, variance ratio test and test of January effect. Results suggest that all analyzed indices, except BelexLine (Serbia), confirm weak form of efficient market hypothesis, while the results on the index BelexLine are mixed and it can be concluded that it does not follow weak form of efficient market hypothesis. Given these results, it can be said that not only passive approach to portfolio management is more appropriate on all indices, except BelexLine, but also additional test and more complex models are necessary in order to confirm this conclusion.

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    • Figure 1. CROBEX autocorrelation test results
    • Figure 2. BelexLine autocorrelation test results
    • Figure 3. SBITOP autocorrelation test results
    • Figure 4. SAX autocorrelation test results
    • Table 1. Correlation coefficients in serial correlation test
    • Table 2. ADF test results
    • Table 3. Runs test results
    • Table 4. Variance ratio test results
    • Table 5. January effect test results
    • Table 6. All test result matrix