Economics of Planning

, Volume 30, Issue 2–3, pp 75–90 | Cite as

Evolving Market Efficiency with an Application to Some Bulgarian Shares

  • Rebecca Emerson
  • Stephen G. Hall
  • Anna Zalewska-Mitura


With new technically advanced methods and computers at our disposal, the efficient market hypothesis is once again being debated. At the same time, we are witnessing an unprecedented growth in both existing and new financial markets. These new markets are often in economies which have just recently embraced free market economics; we term these stock markets infant markets. Such stock markets are obviously not efficient in allocating the supply of savings to productive capital. We do not test whether or not these infant markets are informationally efficient, but instead examine whether and how they are becoming more efficient. We propose modelling the excess returns of individual securities using a multi-factor model with time-varying coefficients and generalised auto-regressive conditional heteroskedastic (GARCH) errors. If the markets are becoming more informationally efficient or the agents are learning, we would expect this to manifest itself as the time-varying coefficients becoming more stable as time increases. We test our model using data on four Bulgarian shares. First, we estimate an AR(2) model and a GARCH-M(1,1) model for the shares. Then, we estimated our AR(2) model with time varying coefficients and GARCH type errors. We find varying levels of efficiency and varying speeds of movement towards efficiency within our sample of four shares.

efficient market hypothesis generalised auto-regressive conditional heteroskedastic (GARCH) errors infant markets multi-factor model time-varying coefficients 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Baillie, R.T. (1989), 'Econometric Tests of Rationality and Market Efficiency', Econometric Reviews, 8, 151-186.Google Scholar
  2. Cornelius, P. K. (1994), 'A Note on the Informational Efficiency of Emerging Stock Markets', Welt wirtschaftliches Archiv, 24, 820-828.Google Scholar
  3. Dwyer, G. P. and M.S. Wallace (1992) 'Cointegration and Market Efficiency', Journal of lnternational Money and Finance, 11, 318-327.CrossRefGoogle Scholar
  4. Fama, E. (1970) 'Efficient Capital markets: A Review of Theory and Empirical Work', The Journal of Finance, 25, 383-417.CrossRefGoogle Scholar
  5. Hall S.G. and D. Miles (1992),'Measuring Efficiency and Risk in the Major Bond Markets', Oxford Economic Papers, 44, 599-625.Google Scholar
  6. Harvey, A.C. (1987), 'Applications of the Kalman Filter in Econometrics', in T.F. Bewley (ed.) Advances in Econometrics: Fifth World Congress, vol.1, Econometric Society Monograph No.13, Cambridge University Press.Google Scholar

Copyright information

© Kluwer Academic Publishers 1997

Authors and Affiliations

  • Rebecca Emerson
    • 1
  • Stephen G. Hall
    • 2
    • 3
  • Anna Zalewska-Mitura
    • 3
  1. 1.BzwLondon
  2. 2.Imperial College of Science Technology and MedicineLondon
  3. 3.London Business SchoolLondon

Personalised recommendations