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The Influence of Uncertainty on Market Efficiency: Evidence from Selected European Financial Markets

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  • Mariya Paskaleva
  • Ani Stoykova

Abstract

The purpose of this study is to determine if the capital markets of fourteen European countries are efficient or not. Additionally, we examine the impact of VIX and GEPU returns on the market efficiency of the analyzed capital markets. We apply the Augmented Dickey-Fuller (ADF) test and Threshold GARCH (TGARCH) Model. The period under examination is 2003-2016. Our results show that the explored European markets are highly integrated, and in the context of the Efficient Market Hypothesis (EMH), a division along the line of the developed-developing market has been revealed. The Bulgarian capital market shows a strong degree of integration with the other explored economies in the conditions of EMH. The efficiency of the explored markets is improved by adding to the model VIX and GEPU returns. We prove that diversification can be achieved based on emerging markets of the EU Member States. Prolonged periods of low volatility can further reduce correlations, encouraging further risk-taking.

Suggested Citation

  • Mariya Paskaleva & Ani Stoykova, 2021. "The Influence of Uncertainty on Market Efficiency: Evidence from Selected European Financial Markets," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 8, pages 175-198.
    • Handle: RePEc:bas:econst:y:2021:i:8:p:175-198
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G01 - Financial Economics - - General - - - Financial Crises
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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