Efficiency Tests in the Iberian Stock Markets

13 Pages Posted: 6 Oct 2004

See all articles by Jose Benzinho

Jose Benzinho

ISCAC Coimbra Business School

José Carlos Dias

Instituto Universitário de Lisboa (ISCTE-IUL)

Luis Lopes

Independent

Vitor Martins

Independent

Date Written: 2002

Abstract

This paper investigates the efficiency of the two major stock indexes of the Iberian Peninsula, the Portuguese Stock Index (PSI-20) and the Spanish Stock Index (IBEX-35). We used daily data from January 1993 to September 2001 for the Portuguese stock index and daily data from October 1990 to September 2001 for the Spanish stock index. Serial correlations, unit root tests and variance ratio tests are used to test the efficiency of these two stock indexes. Although the complementary of these tests, we used all of them to get a higher robustness of the conclusions. We examined serial correlation coefficients for successive stock index changes to test whether they are statistically equal to zero to establish the random walk nature of stock indexes. The augmented Dickey-Fuller (ADF) test are used to test the null hypothesis that the series has a unit root and the variance ratio tests are used to examine the random walk hypothesis for the series of these two stock indexes. The results of the serial correlations, unit root tests and variance ratio tests provide ambiguous evidence for the random walk hypothesis. The empirical evidence from the unit root tests do not reject the efficient market.

Keywords: Stock indexes, market efficiency, unit roots

JEL Classification: G10, G15

Suggested Citation

Benzinho, Jose Manuel and Dias, José Carlos and Lopes, Luis and Martins, Vitor, Efficiency Tests in the Iberian Stock Markets (2002). Available at SSRN: https://ssrn.com/abstract=599926 or http://dx.doi.org/10.2139/ssrn.599926

Jose Manuel Benzinho (Contact Author)

ISCAC Coimbra Business School ( email )

316 Coimbra
Portugal

José Carlos Dias

Instituto Universitário de Lisboa (ISCTE-IUL) ( email )

Lisboa
1600-189 Lisboa
Portugal
+351 217650531 (Phone)

Luis Lopes

Independent

Vitor Martins

Independent