The Euro and European Stock Market Efficiency

25 Pages Posted: 11 Feb 2014 Last revised: 20 Aug 2015

See all articles by Andrew Urquhart

Andrew Urquhart

ICMA Centre, Henley Business School

Date Written: November 1, 2013

Abstract

This paper examines the impact of the introduction of the Euro currency on the market efficiency of ten of the most developed European stock markets during the period 1988-2012. We use an autocorrelation test, a runs test, various formulations of the variance ratio test and the nonlinear BDS test, which are performed on daily data for the full sample period, as well as two subsets dictated by the introduction of the Euro currency. The full sample results are mixed, with the Netherlands accepting the EMH while Ireland completely rejects the EMH, with the other markets providing mixed evidence for market efficiency. The subsample period results show that while some markets became more efficient after the introduction of the Euro currency (Spain and Finland) and some markets became more inefficient (France), some were unaffected by the introduction of the Euro (the Netherlands and Italy). Overall our results show that the impact of the Euro currency is mixed, whether the market has or has not adopted the single currency.

Keywords: market efficiency, Euro currency, predictability, changing efficiency

JEL Classification: G14, G15

Suggested Citation

Urquhart, Andrew, The Euro and European Stock Market Efficiency (November 1, 2013). Applied Financial Economics, Vol. 24, No. 19, 2014, Available at SSRN: https://ssrn.com/abstract=2393535 or http://dx.doi.org/10.2139/ssrn.2393535

Andrew Urquhart (Contact Author)

ICMA Centre, Henley Business School ( email )

University of Reading
Whiteknights
Reading, Berkshire RG6 6BA
United Kingdom

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