The Euro and European stock market efficiency

Urquhart, A. ORCID: https://orcid.org/0000-0001-8834-4243 (2014) The Euro and European stock market efficiency. Applied Financial Economics, 24 (19). pp. 1235-1248. ISSN 0960-3107 doi: 10.1080/09603107.2014.924292

Abstract/Summary

This article examines the impact of the introduction of the Euro currency on the market efficiency of 10 of the most developed European stock markets during the period 1988 to 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 market efficiency and Ireland completely rejecting it, 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, indicating that its introduction was not a decisive factor in the behaviour of stock returns in European markets.