Are the Transition Stock Markets Efficient? Evidence from Non-Linear Unit Root Tests

Abstract

In this paper we address efficiency of eight transition stock markets, namely, Bulgarian, Chinese, Czech, Hungarian, Polish, Romanian, Russian and Slovakian stock markets by testing whether the price series of these markets contain unit root. For this purpose we employ the nonlinear unit root test procedure recently developed by Kapetanios et al. (2003) that has a better power than standard unit root tests when series under consideration are characterised by a slower speed of mean reversion. The results of nonlinear unit root tests indicate that only Bulgarian, Czech, Hungarian and Slovakian price series contain unit root, consistent with weak form efficiency.