A Nonlinear Analysis of Weak Form Efficiency of Stock Index Futures Markets in Cce Emerging Economies

Abstract

Futures markets, through carrying considerable impact on the spot market, serving such functions as price discovery and risk reduction for all market participants, and providing beneficial effects on the economic growth process especially in emerging countries, appear to be a vital part of a well-functioning economy. Accordingly, this paper examines weak form futures market efficiency of five CEE Emerging Economies. For this purpose, besides the traditional unit root tests, to account for nonlinearities in financial data, we employ nonlinear unit root tests along with their panel extensions. The results suggest that although the examined markets are efficient in linear sense, inefficiencies prevail when we account for nonlinearities. These findings imply that the examined countries, especially Poland and Turkey, need to take precautions to overcome the obstacles in their prevailing market structures, especially inherited in the sources of nonlinearity in the financial data, and to ensure a more efficient futures markets