The evolution of stock markets in transition economies

A significant autocorrelation of returns, also called predictability, may i ndicate market inefficiency. To test whether market efficiency has improved in transition economies, we develop a methodology based on a time-varying parameter model. We apply this methodology to a set of recently established stock markets over the period April 1994 through June 1999. We find that t he Hungarian market always satisfies weak efficiency. For the Czech and Pol ish markets, we document convergence reward efficiency. On the other hand, a constantly significant level of predictability characterizes the Russian market. For this market, we cannot draw any conclusions concerning market e fficiency. (C) 2000 Academic Press.