Relationship between Macroeconomic Indicators and Capital Markets Performance in Selected Southeastern European Countries
This study tests the weak form of the efficient capital markets theorem in five transition economies in Southeast Europe between 2005 and 2016. A panel pooled mean group estimator is used to examine the relationship between macroeconomic indicators...
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| Format: | Working Paper |
| Language: | English |
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World Bank, Washington, DC
2020
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| Online Access: | http://documents.worldbank.org/curated/en/973421594990591465/Relationship-between-Macroeconomic-Indicators-and-Capital-Markets-Performance-in-Selected-Southeastern-European-Countries http://hdl.handle.net/10986/34169 |
| Summary: | This study tests the weak form of the
efficient capital markets theorem in five transition
economies in Southeast Europe between 2005 and 2016. A panel
pooled mean group estimator is used to examine the
relationship between macroeconomic indicators and the
performance of stock market indexes. This is a suitable
estimator for these young frontier markets, given that they
have yet to develop the breadth and depth of an advanced
market—such as ample liquidity and traders—to aggregate
cross-country data and use level series prime data instead
of differentials of the same. These frontier capital markets
are found to be weak form inefficient, meaning that stock
prices do not reflect available current public information.
In other words, when a market is transparent and investor
behavior is rational, the macroeconomic data should be
included in the value of the stock indexes. The five
countries may benefit from bringing their capital markets
legislation in line with those of developed countries and by
improving corporate governance and transparency. This would
boost investor trust and liquidity. The coverage of this
research can be extended to find more standardized data
values and develop additional factors not captured by this model. |
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