ISSN 1750-9653, England, UK

International Journal of Management Science

and Engineering Management, 7(1): 53-63, 2012
http://www.ijmsem.org/
Ranking eciency for twenty-six emerging stock markets
and nancial crisis: evidence from the shannon entropy
approach
Walid Mensi

Department of nance, Faculty of Management and Economic Sciences of Tunis, El Manar University, B.P. 248, C.P. 2092, Tunis
Cedex, Tunisia
(Received 5 November 2011, 20 December 2011, Accepted 29 January 2012)
Abstract. In this paper the evolution of a weak-form eciency for twenty six emerging stock markets is tested. To do this, a
modied Shannon entropy and a Symbolic Time Series Analysis are employed over the period September 1997 to November 2007.
A regression is performed for time windows with 100 observations and a rolling sample approach. The empirical results show that
stock market eciency changes over time and diers from one market to another and across geographic areas. For example, the
Argentinian market is a more ecient market whereas the Tunisian stock market is less ecient. The ineciency in stock markets
is dynamic. Furthermore, a negative relationship was found between the nancial crisis and stock market eciency. The ndings
of this evolving market eciency may be attributed to microstructure variables. These results have several implications for stock
portfolio hedgers and policy makers.
Keywords: informational eciency, emerging stocks markets, rolling sample approach, symbolic time series analysis, Shannon
entropy
1 Introduction
The eciency market hypothesis (EMH hereafter) plays
a crucial role in modern nancial theory. According to Fama
(1991) [15], a nancial market is considered ecient if the
current security prices fully reect available information at
any point in time. Jensen (1978) [17] cited another less re-
strictive denition saying that a market is supposed ecient
with respect to information set
t
if saying that a market
is supposed ecient with respect to information set
t
if
claimed that markets do not allow investors to earn above-
average returns without accepting above-average risks. Ac-
cording to these denitions, historical sequence prices do
not predict futures prices because they are yet embodied
and consequently there are no accurate patterns. However,
as investors may not release excessive returns in this mar-
ket, the price changes randomly over time. In addition, in an
ecient market, the market price of a security does not nec-
essarily equal to its intrinsic value as all bad and good news
aects security prices. Empirical studies, testing the weak
form show mixed results for both developed and emerging
markets. Previous studies assume that the level of market
eciency stays unchanged in their regressions
1
. Recently,
several researchers have looked at time-varying weak-form
eciency in nancial markets (Lim and Brooks, 2011 [20]).
The main motivation for this study was to test evolv-
ing weak-form market eciency taking an econophysics ap-
proach. A Symbolic Time Series Analysis (STSA) and a
modied Shannon entropy metric, a basic tool in informa-
tion theory and statistical physics, were used for the rst
time to analyze temporal eciency in twenty-six emerging
markets and to examine the relationship between eciency
levels and the nancial crisis using a logit model. Bentes
et al. (2008) [5] argued that entropy measures have proven
useful in describing nancial time series problems. Zunino
et al. (2009) [40] argued that dierent statistical physics
methods like entropies were recently introduced to rank
stock markets in order to distinguish between emerging and
developed economies. This paper extends the work of Risso
(2008) [30] to rank stock markets according to their level of
eciency, which is considered important in strategic asset
allocation, and portfolio risk management.
The remainder of the paper is structured as follows. Sec-
tion 2 presents the literature review. Section 3 describes
the methodology. Section 4 provides empirical results and
interpretations while conclusions are given in section 5.
2 Literature review
Cajueiro and Tabak (2004) [8] examined long range de-
pendence and eciency in 11 emerging markets, and the US
and Japan. Using daily closing prices from January 1992-
December 2002 and a rolling sample approach to calculate
the R/S statistics, modied R/S statistics and Hurst ex-
ponents, they found that the U.S., and Japan were more

Correspondence to: Tel.: +216-24-514-829. E-mail address: walid.mensi@fsegt.rnu.tn.

1
See among others, Cajueiro and Tabak (2004, 2005) [8, 9], Cajueiro et al. (2009) [7], Lim (2007) [19], Lim et al. (2008) [20], Risso
(2008) [30], Yang et al. (2011) [38], Yang et al. (2008) [37].
International Society of Management Science
And Engineering Management
Published by World Academic Press,
World Academic Union
54 W. Mensi: Ranking eciency for twenty-six emerging stock markets and nancial crisis
ecient than Asian markets and Latin American markets
(with the exception of Chile).
Cajueiro and Tabak (2005) [9] employed the same model
(time-varying Hurst exponents) and a sample to test the
long range dependence of the volatility of equity returns
over the period January 1992-January 2004 and suggested
that the Asian equity markets were more ecient than
those of Lain America, and that the U.S. and Japan were
the most ecient.
Lims (2007) [19] study was inspired by that of Ca-
jueiro and Tabak (2005) [9] for testing the relative e-
ciency of stock markets. Lim (2007) [19] used Portman-
teau bi-correlation test statistics and a data rolling sample
for eleven emerging and two developed markets (US and
Japan) over the period January 1992 to December 2005
(with the exception of the Argentinian Merval index that
that begins on August 1993). Lims (2007) [19] study em-
ployed a percentage of time windows by the markets devi-
ation from eciency instead of the median measure used in
Cajueiro and Tabak (2005) [9]. This tool detects the chang-
ing level of eciency in a stock market. Lim concluded that
market eciency was not static and showed that the non-
linear dependence of stock returns were localized in time.
Risso (2008) [30] examined the relationship between
weak-form nancial eciency and the nancial crashes by
using the Shannon entropy on ve Stock market indexes
(Japan, Malaysia, Mexico, Russia and US) which showed
that developed markets were more ecient than emerging
markets conrming Cajueiro and Tabaks (2004, 2005) [8, 9]
conclusion.
Risso (2008) [30] found an inverse relationship between
level eciency and crashes, the probability of crashes de-
creased with increasing eciency. Lim et al. (2008) [21]
tested the eect of the 1997 nancial Asian crisis on the
eciency of eight Asian stock markets via a rolling bi-
correlation test statistic which showed a negative relation-
ship between market eciency and the nancial crisis and
that the degree of eciency improved in the post-crisis pe-
riod.
Lagorade-Segot and Lucey (2008) [18] tested weak-form
eciency in seven emerging Middle-Eastern North African
(MENA) stock exchange markets. A unit root test and a
variance ratio test of daily data was applied on data from
January 1998 to November 2004. The null random walk
hypothesis (RWH hereafter) was rejected and the markets
presented dierent levels of eciency. The scale of e-
ciency in the MENA markets was aected by corporate
governance but economic liberalization appeared insigni-
cant.
In the Gulf countries, Marashdeh and Shrestha (2008)
[24] tested the RWH on the Emirates exchange from Au-
gust 2003 to April 2008. Using daily stock market data,
two approaches were used. The rst based on unit root
tests (ADF, PP) and the second based on Perron (1997)
[28] tested the unit root hypothesis in the presence of un-
known structural breaks. For both the ADF and the PP,
the unit root hypothesis was rejected (accepted) at the rst
dierence (at levels) and demonstrated that the Emirates
stock price index followed a random walk. The results of
the Perron (1997) [28] model showed the presence of struc-
tural breaks in the Emirates stock price index on 1/22/2006
for both (IO
1
and IO
2
) and on 6/1/2005 for the additives
Outlier model. In brief, all models supported the unit root
and the RWH which was consistent with the weak-form
eciency hypothesis which could attract foreign portfolio
investment, encourage foreign portfolio investment, encour-
age the pricing and the availability of capital.
Butler and Malaikah (1992) [6] tested the EMH in the
Middle East (Saudi Arabia and Kuwait). They employed a
serial correlation method and run tests over the period 1985
to 1989, the results of which suggested that institutional
factors aected operational ineciency in the Saudi Ara-
bia stock exchange market. This result was less pronounced
in the Kuwaiti stock market. Serial correlation signicance
was revealed in many Kuwait stocks, a result which was
further conrmed by Al-Loughani (1995) [3].
Squalli (2005) [33] employed a variance ratio test and
daily sectorial indices for the period 2000 to 2005 to inves-
tigate market eciency in selected sectors of the Dubai -
nancial market and the Abu Dhabi securities exchange. The
results showed that the RWH in all sectors of the United
Arab Emirates (UAE) was rejected, with the exception of
the Dubai banking sector and Abu Dhabi insurance sector.
Chancharat and Valadkhani (2007) [10] tested the RWH
in the presence of structural breaks for 16 markets. The
tests developed Zivot and Andrews (1992) [39] and Lums-
daine and Papell (1997) [22] were used in the study. The
RWH was accepted for 14 markets according to the Zivot
and Andrews test and rejected for ve markets according
to the Lumsdaine and Papell test.
Ozdemir (2008) [27] investigated weak-form market ef-
ciency in Turkey using dierent methods (a ADF test, a
unit root with two structural breaks, a run test and a vari-
ance ratio test) for weak data over the period 1990-2005 in
the Istanbul Stock Exchange Market (ISE) and concluded
in favor of the weak eciency hypothesis. Abraham et al.
(2002) [1] used the Beveridge-Nelson decomposition of in-
dices and advanced mixed results to measure eciency in
the Kuwaiti, Saudi and Bahraini markets.
Yang et al. (2008) [37] analyzed the temporal evolution of
stock market eciency in the U.S., Japan, and Korea (Stan-
dard and Poors 500 index, Nikkei 225 Stock Average, and
the Korean Composite Stock Price Index) using entropy
density
2
. The authors argued that the entropy density in-
creased over time and consequently the markets became
more ecient.
Bentes et al. (2008) [5] used conditionally heteroscedas-
tic models like ARCH, GARCH, IGARCH and FIGARCH,
and entropy measures like the Shannon entropy, Renyi en-
tropy and Tsallis entropy to investigate long memory and
volatility clustering for the S&P 500, NASDAQ 100 and
Stoxx 50 indexes over the period 2002-2007. The results
showed evidence of nonlinear dynamics.
Dragota et al. (2009) [13] employed a Multiple Variance
Ratio to test the RWH in the Romanian market. Using daily
and weekly returns for 18 companies listed on the rst tier
of the Bucharest stock exchange and the indexes of Roma-
nian Capital Market over the period (rst listing until the
end of 2006), the results supported the RWH. However, the
Romanian market was found to be weakly ecient and re-
turn forecasting was impossible to establish based on past
returns. Zunino et al. (2009) [40] used forbidden patterns
and permutation entropy concepts to quantify stock market
ineciency. It was found that the degree of market ine-
ciency was positively correlated with a number of forbid-
den patterns and negatively correlated with the permuta-
tion entropy. The results also showed that these two phys-
ical concepts were helpful in discriminating stock market
2
The authors used some others statistical measures like probability distribution, scaling property of standard deviation, statistical
complexity, and autocorrelation function.
IJMSEM email for contribution: submit@msem.org.uk
International Journal of Management Science and Engineering Management, 7(1): 53-63, 2012 55
Table 1 Descriptive statistics
Countries Mean Median Maximum Minimum
Standard
deviation
Skewness Kurtosis Jarque-Bera P-value
EGYPT 0.000644 0.000000 0.092859 0.090046 0.016905 0.159546 7.037774 1716.419 0.000000
MOROCCO 0.000368 0.000117 0.062507 0.048187 0.009408 0.076783 7.097145 1758.765 0.000000
S. AFRICA 0.000373 0.001150 0.076363 0.130200 0.016999 0.623740 6.992878 1830.862 0.000000
CHINA 8.24E 05 8.14E 05 0.118180 0.144419 0.020548 0.038952 6.794926 1507.388 0.000000
INDIA 0.000668 0.000995 0.098967 0.120975 0.017060 0.460392 7.369030 2085.832 0.000000
PAKISTAN 0.000243 0.000474 0.142051 0.157272 0.021075 0.582262 9.461630 4510.257 0.000000
INDONESIA 0.000225 0.000523 0.237737 0.430810 0.033227 1.070731 25.69696 54377.58 0.000000
KOREA 0.000640 0.000657 0.268808 0.216664 0.028005 0.184111 13.05005 10581.67 0.000000
MALAYSIA 0.000223 0.000000 0.258537 0.369670 0.020421 0.945062 66.00754 415729.7 0.000000
PHILIPPINES 7.26E 05 0.000000 0.219717 0.092424 0.018783 1.039567 16.76995 20290.37 0.000000
TAIWAN 6.01E 05 3.52E 05 0.086510 0.130481 0.018186 0.123771 6.761228 1486.524 0.000000
THAILAND 0.000184 0.000172 0.181001 0.180845 0.023427 0.634131 13.08312 10805.43 0.000000
JORDAN 0.000379 0.000000 0.073713 0.094366 0.011147 0.392837 13.40510 11391.93 0.000000
TURKEY 0.000463 0.000522 0.220148 0.274195 0.034581 0.253300 9.537513 4498.427 0.000000
HUNGARY 0.000570 0.001155 0.124161 0.190124 0.019935 0.681615 11.60025 7932.948 0.000000
POLAND 0.000423 0.000595 0.119464 0.115906 0.019712 0.125560 5.652566 742.7504 0.000000
RUSSIA 0.000455 0.001264 0.242200 0.280966 0.032897 0.438820 13.12374 10803.61 0.000000
CZECH. R 0.000886 0.001108 0.089267 0.073933 0.016386 0.173237 5.246147 540.4110 0.000000
ARGENTINA 0.000219 0.000262 0.163412 0.336472 0.024890 1.357661 24.96665 51256.50 0.000000
BRAZIL 0.000484 0.001368 0.173349 0.176509 0.023769 0.222592 9.134779 3958.351 0.000000
COLOMBIA 0.000515 0.000330 0.164922 0.129676 0.017123 0.038464 12.98707 10436.08 0.000000
MEXICO 0.000536 0.000956 0.144457 0.217589 0.018653 0.385254 15.54593 16530.12 0.000000
PERU 0.000654 0.000630 0.106478 0.093377 0.015635 0.256927 7.360889 2017.316 0.000000
CHILE 0.000294 0.000393 0.070071 0.093769 0.012119 0.364330 6.936274 1676.636 0.000000
VENEZUELA 0.000180 0.000000 0.347299 0.451583 0.029991 0.826622 38.56505 132623.3 0.000000
TUNISIA 0.000384 0.000160 0.030405 0.021246 0.004445 0.409859 6.201521 1118.562 0.000000
dynamics. Zunino et al. (2010) [41] used the complexity-
entropy causality plane to distinguish the stages in stock
market development, which showed that such a statistical
physics approach was useful, allowing for a more rened
classication of stock market dynamics.
Al Janabi et al. (2010) [2] tested for informational e-
ciency in the six emerging markets of the Gulf Cooperation
Council (GCC) with respect to oil and gold price shocks.
A bootstrap simulation technique was used for the period
2006-2008. They concluded that the GCC stock markets
were weakly ecient with regard to oil and gold prices.
From this research, it was concluded that the gold and oil
price index information cannot improve GCC stock market
index forecasting.
Wang et al. (2010) [35] examined the Shanghai index
EMH from the period December 1990 to December 2008 us-
ing both Hurst exponents, DME and DMEF methods. The
empirical results revealed that the degree of eciency im-
proved after the reforms. More precisely, the price-limited
reform ameliorated the eciency in the long term whereas
the extent was narrow in the short term.
More recently, Yang et al. (2011) [38] analyzed the tem-
poral evolution of statistical quantities such as the cumula-
tive distribution function of volatility, the autocorrelation
function, the detrended uctuation analysis of log returns,
and entropy density for 10 markets. They found patterns
and long-range correlations until the mid-1990s. In con-
trast, the long-range correlations for most markets short-
ened, and the patterns weakened in the 2000s. The improve-
ment in communication infrastructure such as the internet
and internet-based trading systems, which help facilitate
the rapid dissemination of information, were oered as ex-
planations for the results.
3 Methodology
3.1 Data description
In this study the daily closing spot prices relative to
twenty-six emerging stock exchange markets
3
were consid-
ered for the period 1997-2007. The choice of emerging mar-
kets is justied by the rapid economic growth experienced
in these markets and their economic structure as well as
the convergence toward a developed market. The emerg-
ing stock markets have meaningful investment opportuni-
ties such as more predictable returns, and lower correla-
tions than developed market returns, so investors reduce
their risks through international portfolio diversication.
The continuously compounded daily returns were computed
as follows:
r
t
= 100 ln

P
t
P
t1

, (1)
3
Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Jordan, Korea, Malaysia, Mexico,
Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, Tunisia, Turkey, and Venezuela.
IJMSEM email for subscription: info@msem.org.uk
56 W. Mensi: Ranking eciency for twenty-six emerging stock markets and nancial crisis

Fig. 1Time-variations of daily indices spot prices










0
200
400
600
800
1000
1200
500 1000 1500 2000 2500
EGYPT
100
200
300
400
500
600
500 1000 1500 2000 2500
MOROCCO
100
200
300
400
500
600
500 1000 1500 2000 2500
SOUTHAFRICA
0
20
40
60
80
100
120
500 1000 1500 2000 2500
CHINA
0
100
200
300
400
500
600
700
500 1000 1500 2000 2500
INDIA
0
40
80
120
160
200
240
500 1000 1500 2000 2500
PAKISTAN
0
100
200
300
400
500
600
700
500 1000 1500 2000 2500
INDONESIA
0
100
200
300
400
500
500 1000 1500 2000 2500
KOREA
50
100
150
200
250
300
350
400
500 1000 1500 2000 2500
MALAYSIA
50
100
150
200
250
300
350
400
500 1000 1500 2000 2500
PHILIPPINES
120
160
200
240
280
320
360
400
440
500 1000 1500 2000 2500
TAIWAN
0
50
100
150
200
250
300
500 1000 1500 2000 2500
THAILAND
50
100
150
200
250
300
350
400
500 1000 1500 2000 2500
J ORDAN
0
100
200
300
400
500
600
700
800
500 1000 1500 2000 2500
TURKEY
0
200
400
600
800
1000
1200
1400
500 1000 1500 2000 2500
HUNGARY
200
400
600
800
1000
1200
1400
1600
1800
500 1000 1500 2000 2500
POLAND
0
200
400
600
800
1000
1200
1400
1600
500 1000 1500 2000 2500
RUSSY
0
100
200
300
400
500
600
700
800
900
500 1000 1500 2000 2500
CZECHREPUBLIC
0
500
1000
1500
2000
2500
3000
3500
500 1000 1500 2000 2500
ARGENTINA
0
1000
2000
3000
4000
500 1000 1500 2000 2500
BRAZIL
0
100
200
300
400
500
600
700
500 1000 1500 2000 2500
COLOMBIA
0
1000
2000
3000
4000
5000
6000
7000
500 1000 1500 2000 2500
MEXICO
0
200
400
600
800
1000
1200
1400
1600
500 1000 1500 2000 2500
PERU
0
400
800
1200
1600
2000
2400
500 1000 1500 2000 2500
CHILE
40
80
120
160
200
240
280
500 1000 1500 2000 2500
VENEZUELA
800
1200
1600
2000
2400
2800
500 1000 1500 2000
TUNISIA
Fig. 1 Time-variations of daily indices spot prices
where r
t
and P
t
are the percentage return and the index
closing price on day (t), respectively.
3.2 Descriptive statistics
3.2.1 Normality tests
Descriptive statistics for all the daily returns are in Tab.
1. However, all index returns share similar statistical prop-
erties. More precisely, all index returns did not correspond
to a normal distribution assumption. According to the
Jarque-Bera test statistic, the null hypothesis of Gaussian
distribution was undeniably rejected. Descriptive graphs for
daily price levels, and daily returns for the market indexes
are in Figs. 1 2. Volatility clustering is apparent for all the
return time series revealing the presence of heteroscedastic-
ity.
3.2.2 Unit root analysis
Before tting the time series, tests were done to check the
presence of unit roots and to test stationarity. Tab. 2 shows
the results of the Phillips-Perron (1988) [29] tests. These PP
tests rejected the unit root hypothesis for all market daily
returns
4
. So, from this it appears that all stock exchange
market return time series are governed by an I(0) process
which has no long-range memory.
3.3 The modied Shannon entropy
The Shannon entropy attributed to Claude Shannon
(1948) [32]. The concept of entropy can be used where prob-
abilities can be particularly dened and can be of great
assistance when examining nancial chronics. In contrast
to the GARCH models, the Shannon entropy captures the
incertitude (randomness) of a nancial time series without
imposing any constraints on the theoretical probability dis-
4
These unit root and stationary test results could should be considered with caution because as these tests have beenwere later
rened by several authors including Ng and Perron (2001) [28]). Moreover, some authors (see among others, Tanaka (1999) [34])
have shown that most of these procedures have very low power if the alternatives are in a fractional form.
IJMSEM email for contribution: submit@msem.org.uk
International Journal of Management Science and Engineering Management, 7(1): 53-63, 2012 57

Fig. 2 Time-variations of daily indices returns

-.10
-.05
.00
.05
.10
500 1000 1500 2000 2500
EGYPT
-.06
-.04
-.02
.00
.02
.04
.06
.08
500 1000 1500 2000 2500
MOROCCO
-.16
-.12
-.08
-.04
.00
.04
.08
500 1000 1500 2000 2500
SOUTHAFRICA
-.15
-.10
-.05
.00
.05
.10
.15
500 1000 1500 2000 2500
CHINA
-.16
-.12
-.08
-.04
.00
.04
.08
.12
500 1000 1500 2000 2500
INDIA
-.16
-.12
-.08
-.04
.00
.04
.08
.12
.16
500 1000 1500 2000 2500
PAKISTAN
-.5
-.4
-.3
-.2
-.1
.0
.1
.2
.3
500 1000 1500 2000 2500
INDONESIA
-.3
-.2
-.1
.0
.1
.2
.3
500 1000 1500 2000 2500
KOREA
-.4
-.3
-.2
-.1
.0
.1
.2
.3
500 1000 1500 2000 2500
MALAYSIA
-.10
-.05
.00
.05
.10
.15
.20
.25
500 1000 1500 2000 2500
PHILIPPINES
-.15
-.10
-.05
.00
.05
.10
500 1000 1500 2000 2500
TAIWAN
-.2
-.1
.0
.1
.2
500 1000 1500 2000 2500
THAILAND
-.12
-.08
-.04
.00
.04
.08
500 1000 1500 2000 2500
J ORDAN
-.3
-.2
-.1
.0
.1
.2
.3
500 1000 1500 2000 2500
TURKEY
-.20
-.15
-.10
-.05
.00
.05
.10
.15
500 1000 1500 2000 2500
HUNGARY
-.15
-.10
-.05
.00
.05
.10
.15
500 1000 1500 2000 2500
POLAND
-.3
-.2
-.1
.0
.1
.2
.3
500 1000 1500 2000 2500
RUSSY
-.08
-.04
.00
.04
.08
.12
500 1000 1500 2000 2500
CZECHREPUBLIC
-.4
-.3
-.2
-.1
.0
.1
.2
500 1000 1500 2000 2500
ARGENTINA
-.20
-.15
-.10
-.05
.00
.05
.10
.15
.20
500 1000 1500 2000 2500
BRAZIL
-.15
-.10
-.05
.00
.05
.10
.15
.20
500 1000 1500 2000 2500
COLOMBIA
-.3
-.2
-.1
.0
.1
.2
500 1000 1500 2000 2500
MEXICO
-.12
-.08
-.04
.00
.04
.08
.12
500 1000 1500 2000 2500
PERU
-.12
-.08
-.04
.00
.04
.08
500 1000 1500 2000 2500
CHILE
-.5
-.4
-.3
-.2
-.1
.0
.1
.2
.3
.4
500 1000 1500 2000 2500
VENEZUELA
-.03
-.02
-.01
.00
.01
.02
.03
.04
500 1000 1500 2000
TUNISIA
Fig. 2 Time-variations of daily indices returns
tribution. This metric was used to both check the eciency
market weak-form hypothesis and to rank between markets.
According to Risso (2008) [30], the modied Shannon
entropy is dened as follows
H =
1
log
2
(n)

i=1
p
i
log
2
p
i

, (2)
where n is the total number of sequences, p
i
is the proba-
bility of sequence i = 1, 2, , n and log
2
is the logarithm
base2, which is used because the information is measured
in bits. The convention 0 log
2
0 = 0 is adopted.
To calculate the Shannon entropy H-statistic, the follow-
ing steps were conducted. First, the time series was sym-
bolized to derive more information. In this study, the time
series contained positive and negative index returns. In this
case, zero symbols were assigned to the negative returns,
the number one (1) symbol to the positive returns with zero
being the breaking point between the two. The zero repre-
sented a drop in prices (referred to as bear market) while
the number one (1) represented a rise prices (referred to
as bull market). So, from these, the original returns time
series was converted into a symbolic time series involving
only two values (0 and 1).

r
t
> 0, s
t
= 1
r
t
0, s
t
= 0
(3)
In expression (3), r
t
and s
t
denote the indices return series
at time t and its corresponding symbolic series respectively.
The second step of choosing the optimal sequence or
length
5
. However, a sequence of ve days was set as an
entropy of six days had approximately the same result as
ve days; H(L = 5) H(L > 5). The total number of se-
quences was given by n = 2
L
= 2
5
= 32, where L is a length
or a sequence of days (L = 5).
In the third step, the probability distribution of each se-
quence i was calculated. The probability of sequence i was
the total quantity of sequence i divided by the whole period.
5
A sequence or length L of m days is a sequence or length of m consecutive returns.
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58 W. Mensi: Ranking eciency for twenty-six emerging stock markets and nancial crisis
Table 2 PP unit root tests
Countries
Index series Return series
Intercept
Trend and
intercept
None Intercept
Trend and
Intercept
None
EGYPT 0.423893 47.62156
MOROCCO 1.497596 41.0566
S. AFRICA 1.326623 46.17912
CHINA 0.175536 43.31700
INDIA 2.518131 46.58373
PAKISTAN 2.64733 47.65622
INDONESIA 1.823252 44.30675
KOREA 0.936046 46.03422
MALYSIA 2.186765 44.19613
PHILIPPINES 0.559478 42.16723
TAIWAN 2.462995 48.01041
THAILAND 2.803366 41.75280
JORDAN 1.022909 49.74087
TURKEY 0.971085 47.53552
HUNGARY 1.228158 46.82859
POLAND 0.561376 46.00306
RUSSIA 1.924193 47.36685
CZECH. R 5.541759 45.18803
ARGENTINA 0.895647 49.11196
BRAZIL 1.153497 45.66158
COLOMBIA 1.426862 40.83004
MEXICO 1.020625 46.69633
PERU 5.418627 45.51433
CHILE 0.809273 41.30271
VENEZUELA 4.277928 50.10688
TUNISIA 4.546649 31.86900
Critical values
3.432761(1%)
2.862491(5%)
2.567321(10%)
3.961699(1%)
3.411597(5%)
3.127668(10%)
*** Denotes statistically signicant parameters at the 1% level.
* Denotes statistically signicant parameters at the 10% level.
The modied Shannon entropy H oscillated between zero
and one. The maximum incertitude was obtained when the
events were equiprobable (p
1
= p
2
= = p
n
= 1/n).
When the H equals one and the entropy attains its maxi-
mum, the index price shows randomness and the market is
considered ecient. In contrast, the minimum incertitude
was when (p
1
or p
2
or p
n
= 0 or 1). When the H equals
zero and the entropy reaches its minimum, the market is in-
ecient. Therefore, the presence of patterns was detected.
To study the stock market eciency daily evolution, a
time-window of 100 observations was employed allowing the
capture of the locality, as shown in Fig. 3. Grech and Mazur
(2004) [16] argued that the time-windows should be small
to detect the locality.100 observations lead to the detection
of the eect of major events on weak-form market eciency.
The Shannon entropy coecient was shown to have good
sample properties over short data horizons.
Then, a rolling sample approach
6
was used. The sample
was rolled one point forward eliminating the rst obser-
vation and including the next one for re-estimation of the
Shannon entropy. This procedure was repeated until the
end of the entire selected sample.The application of the
rolling approach was shown to capture the persistence of
stock price deviation from a random walk over time.
4 Empirical results and interpretations
The estimation of the Shannon entropy over dierent
rolling time-windows from moment 1 to the end of sample
allowed thousands of time-varying H series to be obtained.
The descriptive statistics for the modied Shannon entropy
exponent for all markets are given in Tab. 3.
From this data, the minimum of Shannon entropy ex-
ponent was 0.918 for the Tunisian stock market and the
maximum was 0.953 for Argentinian market. The Jorda-
nian stock market was the most volatile with the risk (in
terms of the standard deviation) of this market being 5.30%
in contrast to 0.12% for the Brazilian market. The Skewness
and Kurtosis measures indicated that all series didnt follow
6
Cajueiro and Tabak (2005) [9], Cajueiro et al. (2009) [7], Lim (2007) [19], Lim et al. (2008) [21], Risso (2008) [30] have commonly
used the rolling sample approach to preserve the dynamic aspect of eciency.
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International Journal of Management Science and Engineering Management, 7(1): 53-63, 2012 59
Table 3 The modied Shannon entropy exponents for emerging stock markets
Countries Mean Median Maximum Minimum
Standard
deviation
Skewness Kurtosis Jarque-Bera P-value
EGYPT 0.923073 0.932053 0.990125 0.800551 0.038923 0.995516 3.524478 425.3413 0.000000
MOROCCO 0.928487 0.930704 0.989144 0.830628 0.031063 0.437128 2.676798 87.16800 0.000000
S. AFRICA 0.946675 0.951668 0.989396 0.845438 0.023100 1.077581 4.255331 624.1311 0.000000
CHINA 0.942773 0.947087 0.981977 0.854457 0.022497 0.932680 3.859727 423.2765 0.000000
INDIA 0.936200 0.942713 0.981396 0.832848 0.030212 0.848235 3.179048 291.9767 0.000000
PAKISTAN 0.941448 0.946691 0.981777 0.835598 0.022826 1.442022 5.770345 1604.584 0.000000
INDONESIA 0.938324 0.938428 0.993847 0.854822 0.022909 0.303134 3.253848 43.34389 0.000000
KOREA 0.946703 0.950474 0.988215 0.879822 0.021513 0.899924 3.453264 3445.6381 0.000000
MALAYSIA 0.934620 0.941609 0.983157 0.816964 0.030715 1.286896 4.547964 905.0669 0.000000
PHILIPPINES 0.938684 0.945155 0.982706 0.854428 0.025286 0.882307 3.432168 331.1632 0.000000
TAIWAN 0.946750 0.949777 0.990176 0.835324 0.023033 1.173500 5.247926 1059.679 0.000000
THAILAND 0.940695 0.944713 0.985525 0.853042 0.024409 0.846339 3.547034 317.4951 0.000000
JORDAN 0.914453 0.931079 0.986905 0.680388 0.053080 1.406629 5.045660 1213.948 0.000000
TURKEY 0.945972 0.947732 0.982957 0.882786 0.018976 0.406412 2.622059 80.62004 0.000000
HUNGARY 0.949120 0.951087 0.985977 0.873609 0.019409 0.788418 3.948750 339.7830 0.000000
POLAND 0.948514 0.950474 0.993595 0.885430 0.021657 0.472635 2.713612 97.88041 0.000000
RUSSIA 0.947919 0.951486 0.987105 0.878428 0.021374 0.719172 3.092879 208.4384 0.000000
CZECH. R 0.945095 0.951932 0.987686 0.819073 0.028131 1.749427 6.590988 2522.097 0.000000
ARGENTINA 0.947287 0.953229 0.987738 0.857048 0.024025 0.920180 3.492893 364.1967 0.000000
BRAZIL 0.948827 0.951345 0.981247 0.888829 0.017082 0.608314 3.087910 149.2872 0.000000
COLOMBIA 0.922693 0.926141 0.982558 0.747844 0.037958 1.253755 5.927346 1490.648 0.000000
MEXICO 0.940345 0.944629 0.983886 0.856455 0.022660 1.011291 3.878266 487.8398 0.000000
PERU 0.939593 0.943312 0.982622 0.842688 0.026186 0.669450 2.996721 179.8642 0.000000
CHILE 0.929149 0.933869 0.990905 0.745213 0.035575 1.661011 8.016292 3631.968 0.000000
VENEZUELA 0.943734 0.946757 0.980215 0.857442 0.021972 0.825897 3.635011 314.2099 0.000000
TUNISIA 0.916511 0.918676 0.984215 0.813043 0.035843 0.442804 2.649225 89.03330 0.000000
a normal assumption. Skewness was asymmetric and nega-
tive for all markets, which showed that the series had a long
left tail distribution. Kurtosis was less than 3 for the Moroc-
can, Turkish, Polish, Peruvian and Tunisian series implying
that the tails taper down more rapidly than the normal dis-
tribution (leptokurtic distribution). The series distribution
for all indexes werenot normally distributed. Fig. 3 presents
the daily eciency measure time-paths for emerging mar-
kets. As shown in this gure, the normality distribution
and the stationarity hypothesis for all time series can be
rejected, which shows that these Shannon entropy expo-
nents are time-varying. The obtained results are not due
to noise in the data time series. The best tool for ranking
eciency markets is the median H of modied Shannon
entropy.
As mentioned above, the Shannon entropy exponent be-
havior exhibited a large deviation from the Gaussian distri-
bution. For this reason, the meaningfulness of the empirical
results was tested by employing a nonparametric statistic
approach. The nonparametric test results are shown in Tab.
4. From this test, the equality of the median null hypothesis
was rejected for all series and was rejected for all series and
were proven to be signicant.
As shown in Tab. 3, the eciency level is time-
varying.This result supports those of Yang et al. (2008)
[37], Zunino et al. (2009, 2010) [40, 41] and Yang et al.
(2011) [38]. The median of the modied Shannon entropy
value (H) is larger for Argentinian market, which indicates
that this market is more ecient. This result conrms those
obtained by Cajueiro and Tabak (2005) [9]. In contrast, the
Tunisian market was less ecient.
Tab. 5 shows the area ranking eciency for the emerg-
ing markets. According to this table, the modied Shannon
entropy median value for Argentina (0.953) is the highest
while the Colombian (0.926) is at the tail end of the Latin
American stock market ranking. For the Asian markets, the
Korean market is the more ecient market and Indonesian
market is the less ecient market. For South Africa and
the MENA region, the median H for South Africa is 0.951
whereas for Tunisia it is 0.918. For the European region,
the Czech market is the most ecient. The dierence in
the eciency degree between all indices can be explained
by the specic features of each market.
Table 4 Nonparametric tests of equality of medians
Method df Value P-value
Med. Chi-square 4 15.09091*** 0.0045
Adj. Med. Chi-square 4 9.325000* 0.0535
Kruskal-Wallis 4 22.23077*** 0.0002
Kruskal-Wallis (tie-adj.) 4 22.23837*** 0.0002
van der Waerden 4 22.01325*** 0.0002
*** Denotes statistically signicant parameters
at the 1% level.
* Denotes statistically signicant parameters
at the 10% level.
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60 W. Mensi: Ranking eciency for twenty-six emerging stock markets and nancial crisis

14

Fig. 3 presents the daily efficiency measure time-paths of daily efficiency measure for
emerging markets. As shown in this figure, the we can undoubtedly reject normality distribution and
the stationarity hypothesis for all time series can be rejected, which reveal showsthat these Shannon
entropy exponents are time-varying. The obtained results are not due to noise in the data time series.
The best tool for ranking efficiency markets is the median of modified Shannon entropy.

Fig. 3Daily efficiency measure Timetime-paths of daily efficiency measure for emerging markets

As mentioned above, the Shannon entropy exponent behavior exhibits exhibited alarge
deviation from the Gaussian distribution. For this reason, we test the meaningfulness of our
theempirical results was tested by, employing a nonparametric statistic approach. The nonparametric
test results are displayed shownin table 4. According to thisFrom this test, the equality of the median
null hypothesis of equality of medians iswas rejected for all series and our theempirical results are
were proven to be significant.





0.76
0.80
0.84
0.88
0.92
0.96
1.00
98 99 00 01 02 03 04 05 06
EGYPTT
.......Internet Bubble
.......Asianfinancial crisis
0.80
0.84
0.88
0.92
0.96
1.00
98 99 00 01 02 03 04 05 06
MOROCCO
0.84
0.88
0.92
0.96
1.00
98 99 00 01 02 03 04 05 06
SOUTHAFRICA
0.84
0.86
0.88
0.90
0.92
0.94
0.96
0.98
1.00
98 99 00 01 02 03 04 05 06
CHINA
.......Asianfinancial crisis
0.80
0.84
0.88
0.92
0.96
1.00
98 99 00 01 02 03 04 05 06
INDIA
0.80
0.84
0.88
0.92
0.96
1.00
98 99 00 01 02 03 04 05 06
PAKISTAN
0.84
0.86
0.88
0.90
0.92
0.94
0.96
0.98
1.00
98 99 00 01 02 03 04 05 06
INDONESIA
mnimumefficiencyOctober 2005.......
0.86
0.88
0.90
0.92
0.94
0.96
0.98
1.00
98 99 00 01 02 03 04 05 06
KOREA
.......Asianfinancial crisis
0.80
0.84
0.88
0.92
0.96
1.00
98 99 00 01 02 03 04 05 06
MALAYSIA
.......Asianfinancial crisis
.......11/09/2001 terrorist attacks
0.84
0.86
0.88
0.90
0.92
0.94
0.96
0.98
1.00
98 99 00 01 02 03 04 05 06
PHILIPPINES
.......Asiancrisis
.......11/09/2001 terrorist attacks
0.80
0.84
0.88
0.92
0.96
1.00
98 99 00 01 02 03 04 05 06
TAIWAN
.......Asianfinancial crisis
0.84
0.86
0.88
0.90
0.92
0.94
0.96
0.98
1.00
98 99 00 01 02 03 04 05 06
THAILAND
.......Asianfinancial crisis
0.65
0.70
0.75
0.80
0.85
0.90
0.95
1.00
98 99 00 01 02 03 04 05 06
J ORDAN
0.88
0.90
0.92
0.94
0.96
0.98
1.00
98 99 00 01 02 03 04 05 06
TURKEY
.......20/11/2000 Turkeycrisis
......crash1999
0.86
0.88
0.90
0.92
0.94
0.96
0.98
1.00
98 99 00 01 02 03 04 05 06
HUNGARY
......Internet Bubble
0.88
0.90
0.92
0.94
0.96
0.98
1.00
98 99 00 01 02 03 04 05 06
POLAND
0.86
0.88
0.90
0.92
0.94
0.96
0.98
1.00
98 99 00 01 02 03 04 05 06
RUSSIA
......17/08/1998 Russia crisis
2003 USA militaryinIraq....
0.80
0.84
0.88
0.92
0.96
1.00
98 99 00 01 02 03 04 05 06
CZECHREPUBLIC
0.84
0.86
0.88
0.90
0.92
0.94
0.96
0.98
1.00
98 99 00 01 02 03 04 05 06
ARGENTINA
Argentina crisis......
0.88
0.90
0.92
0.94
0.96
0.98
1.00
98 99 00 01 02 03 04 05 06
BRAZIL
.......Brazil crisis
0.70
0.75
0.80
0.85
0.90
0.95
1.00
98 99 00 01 02 03 04 05 06
COLOMBIA
.......Asianfinancial crisis
0.84
0.86
0.88
0.90
0.92
0.94
0.96
0.98
1.00
98 99 00 01 02 03 04 05 06
MEXICO
0.84
0.86
0.88
0.90
0.92
0.94
0.96
0.98
1.00
98 99 00 01 02 03 04 05 06
PERU
0.70
0.75
0.80
0.85
0.90
0.95
1.00
98 99 00 01 02 03 04 05 06
CHILE
.......Asianfinancial crisis
0.84
0.86
0.88
0.90
0.92
0.94
0.96
0.98
1.00
98 99 00 01 02 03 04 05 06
VENEZUELA
.......Asianfinancial crisis
.......USA militaryinIraq
....11/09/2001 terrorist attacks
0.80
0.84
0.88
0.92
0.96
1.00
98 99 00 01 02 03 04 05 06
TUNISIA
Fig. 3 Daily eciency measure time-paths for emerging markets
Table 5 Ranking for emerging stock markets
Asia H
Median
Latin America H
Median
S. AFRICA & MENA H
Median
Europe H
Median
KOREA 0.950474 ARGENTINA 0.953229 S. AFRICA 0.951668 CZECH R. 0.951932
TAIWAN 0.949777 BRASIL 0.951345 TURKEY 0.947732 RUSSIA 0.951486
CHINA 0.947087 VENEZUELA 0.946757 EGYPT 0.932053 HUNGARY 0.951087
PAKISTAN 0.946691 MEXICO 0.944629 JORDANIE 0.931079 POLAND 0.950474
PHILIPPINES 0.945155 PERU 0.943312 MOROCCO 0.930704
THAILAND 0.944713 CHILE 0.933869 TUNISIA 0.918676
INDIA 0.942713 COLOMBIA 0.926141
MALAYSIA 0.941609
INDONESIA 0.938428
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International Journal of Management Science and Engineering Management, 7(1): 53-63, 2012 61
Table 6 Argentinas nancial crisis and weak-form market eciency
Variable Coecient Std. deviation t-Statistic P-value
Intercept 16.30035 1.783891 9.137527 0.0000
Shannon entropy 16.85941 1.878448 8.975181 0.0000
Mean dependent var 0.577658 S.D. dependent var 0.494035
S.E. of regression 0.486144 Akaike info criterion 1.327545
Sum squared resid 568.6248 Schwarz criterion 1.332351
Log likelihood 1596.365 Hannan-Quinn criter 1.329293
Restr. log likelihood 1639.936 Avg. log likelihood 0.662942
LR statistic 87.14387 McFadden R-squared 0.026569
Probability (LR stat) 0.000000 Total observations 2408
*** Denotes statistically signicant parameters at the 1% level.
In addition, the European area is the more ecient while
the South Africa and MENA region are the most inecient.
The median of medians for the European region is 0.9512
while for the South Africa and MENA region they are both
0.931. The Asian region is in second place (0.9451) while
the Latin American zone is third (0.9446).
As observed graphically, the emerging stock markets evo-
lution of eciency is not similar, but have some character-
istics in common. First, there was a sudden drop in the
eciency measures in August 1990, which coincided with
the Iraqi Invasion of Kuwait.
Furthermore, a minimum level of eciency corresponded
to crisis periods such as the1997 Asian nancial crisis (for
example Chinese and Korean markets), the 2001 Argen-
tinian economic crisis, the 2000 Turkish crisis, the 1998
Brazilian crisis, and the 1998 Russian crisis. In September
2001 and March 2003, the emerging markets eciency was
at its lowest level, which was possibly due to the increasing
uncertainties caused by the September 11, 2001 terrorist
attacks and the USA military action in Iraq (Gulf war).
The EMH has direct consequences for portfolio managers
in their trading strategy design and for nancial managers
for equity nancing decisions (Wang and Yang, 2010 [36]).
The results of these tests have several implications for
traders, portfolio managers and policymakers. For traders,
by explaining the ow of information between emerging
stock markets, while for portfolio managers it spells out the
dynamic linkages between the emerging stock markets over
time allowing for the development of an appropriate hedg-
ing strategy during dicult times such as crashes, nancial
crises and economic crises. These ndings also have some
implications for policymakers who watch the stock market
as an indicator of economic propensity. More importantly,
the eciency market pattern has strategic policy implica-
tions. An inecient stock market provides opportunities for
protable transactions so having this kind of information
allows government authorities to determine when to reduce
interest rates, and also to evaluate the consequences of dif-
ferent economic policies such as money supply, exchange
rates and ination.
The eciency dynamic was shown to be dissimilar in
all markets. Several factors may explain these ndings.
Cajueiro and Tabak (2004) [8] showed dierent levels of
eciency over time and suggested that the information
speed, capital follows and nonsynchronous trading may
aect eciency levels. According to Cajueiro and Tabak
(2005) [9], the dierences in microstructure market condi-
tions may also explain dierences in emerging market ef-
ciency. Charles and Darne (2009) [11] suggested that the
market deregulation explained the divergence in level e-
ciency between Brent and WTI (West Texas Intermediate)
indices in the crude oil market.
Aloui (2005) [4] argued that a lack of cultural equity
slows investor reaction to information which could reduce
eciency. On the other hand, Oh et al. (2007) [26] tested ef-
ciency in European, North American, Asian, and African
foreign exchange markets and found that the European and
North American markets are were more ecient than the
Asian and African markets, concluding that dierences in
liquidity could explain the dierence.
Lagorade-Segot and Lucey (2008) [18] showed that cor-
porate governance (managerial liability and shareholder
protection) and market depth aected MENA market e-
ciency concluding that the dierences in stock market size
played a crucial role in the eciency extent. Eom et al.
(2008) [14] suggested that the nancial market degree of
eciency played a fundamental role when determining in-
formation ow direction and concluded that information
owed from the more ecient stock to the less ecient
stock. Using a time-varying Hurst exponent, Cajueiro et
al. (2009) [7] suggested that nancial market liberalization
increased the eciency level of the Athens stock market.
4.1 Robustness: nancial crisis and stock market
eciency
In a further test the impact of Argentinas nancial cri-
sis
7
on informational eciency was studied. For this pur-
pose, a logit model was employed. Suppose a variable y
takes a value of one (1) if there is a nancial crisis and a
value of zero otherwise. The latent variable y

is dened as
follows
y

i
= +H
i
+
i
, (4)
where H is the eciency measure and
i
is an error term.
The observable variable y is given by
y
i
=

1, if y

i
> 0
0, otherwise
(5)
The present logit model is dened as follows
P(y = 1) =
1
1 + e
(+H
i
)
=
e
(+H
i
)
1 + e
(+H
i
)
. (6)
Tab. 6 reports the regression of the logit model which
seemed to have a high signicance. It can be concluded from
this table that informational eciency is negatively related
to the probability of a nancial crisis. The obtained results
corroborated those of Lim et al. (2008) [21] and Risso (2008)
[30].
7
See Setser and Gelpern (2006) [31] for more information about Argentinas nancial crisis.
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62 W. Mensi: Ranking eciency for twenty-six emerging stock markets and nancial crisis
18

Fig. 4 Time-varyingefficiency for Argentinastock market

FromthefFig. 4, wecan easily observeasignificant fall of in theArgentinian stock market
efficiency level was experiencedfor Argentinastock market during theperiod of crisis. However, the
financial liberalization, financial globalization and market integration also increasetheinstability of
stock markets. Hence, the market is more open to foreign investors which whoconduct
influenceprivateinvestment booms and increasetheincertitude.
The iIncreasing foreign portfolio investment and informational asymmetries can reduce the
market efficiency level of market efficiency and disrupt the financial market functionsing. These
factors seemed to be determinant to inthe Argentina Argentinianfinancial crisis. The
authorityAuthorities would need to implement must impose some reforms and introduce forms of
monitoring on capital flows,. On theother hand, theauthorities and need to beawareas to howshould
revise the political and economic events for which theaffect the markets abilitywas the ability to
allocate funds to the most productive activities. The intervention of government improves the
financial development market and conduct consequently to economic growth.

5. Conclusion
The EMH is the akey modern financial theory concept.of modern financial theory. In fact,
eEveryach investor is interested to measurein measuring the stock marketrandomness of the stock
markets. Theaimof this paper is wasto investigatefor weak-formefficiency of in26 emerging stock
markets, using asymbolic timeseries analysis and theamodified Shannon entropy. Both adatatime-
window for 100 days and a rolling sample approach were employed in order to study the market
efficiency daily evolution of market efficiency. Our empiricalThe results showed that the Shannon
entropy exponent is time-varying, which suggested that themarket efficiency is dynamic and evolves
over time.
Our empiricalTheresults also showed support for thefindings of previous studies likesuch
asAl J anabi et al (2010) [2], Cajueiro and Tabak (2005)[8], Cajueiro et al (2009) [9], Charles and
Darn (2009) [11], Lagorade-Segot and Lucey (2008) [18], Lim(2007) [19],Limet al (2008) [21],
Risso (2008) [30],Wang et al (2010) [35] and Yang et al (2011) [37]. The pPrevious researches
attributed thedifferencein stock market efficiency degreesfor stock markets to somefactors likesuch
asmarket liquidity, markets capitalization, and corporategovernancewhich improveefficiency degree
of equity markets. According to our theempirical results, the median of in Argentina is wasthe
higher while the littlesmallest median is towas inTunisia. According to this,Thus, the Argentina
Argentinianmarket is was consideredthe most efficient market whereas whilethe Tunisianequity
market is wasthe lower least efficient. We also rank the Eefficiency market in function towas also
measured across geographic areas. TheEuropean region is was found to betheleast in most efficient
0.84
0.86
0.88
0.90
0.92
0.94
0.96
0.98
1.00
98 99 00 01 02 03 04 05 06
......Argentina financial crisis
......Brazil financial crisis
Full payment of the IMF's debt.......
Fig. 4 Time-varying eciency for Argentina stock market
From Fig. 4, a signicant fall in the Argentinian stock
market eciency level was experienced during the period
of crisis. However, nancial liberalization, nancial global-
ization and market integration also increase the instability
of stock markets. Hence, the market is more open to for-
eign investors who inuence private investment booms and
increase incertitude.
Increasing foreign portfolio investment and informational
asymmetries can reduce market eciency and disrupt nan-
cial market functions. These factors seemed to be determi-
nant in the Argentinian nancial crisis. Authorities would
need to implement reforms and introduce monitoring on
capital ows, and need to be aware as to how political and
economic events aect the markets ability to allocate funds
to the most productive activities.
5 Conclusions
EMH is a key modern nancial theory concept. Every
investor is interested in measuring the stock market ran-
domness. The aim of this paper was to investigate weak-
form eciency in 26 emerging stock markets using a sym-
bolic time series analysis and a modied Shannon entropy.
Both a data time-window for 100 days and a rolling sam-
ple approach were employed in order to study the market
eciency daily evolution. The results showed that the Shan-
non entropy exponent is time-varying, which suggested that
market eciency is dynamic and evolves over time.
The results also showed support for the ndings of pre-
vious studies such as Al Janabi et al. (2010) [2], Cajueiro
and Tabak (2005) [9], Cajueiro et al. (2009) [7], Charles
and Darne (2009) [11], Lagorade-Segot and Lucey (2008)
[18], Lim (2007) [19], Lim et al. (2008) [21], Risso (2008)
[30], Wang et al. (2010) [35] and Yang et al. (2011) [38].
Previous research attributed the dierence in stock market
eciency degrees to factors such as market liquidity, mar-
kets capitalization, and corporate governance. According to
the empirical results, the median H in Argentina was the
higher while the smallest median H was in Tunisia. Thus,
the Argentinian market was considered the most ecient
market while the Tunisian equity market was the least e-
cient. Eciency was also measured across geographic areas.
The European region was found to be the most ecient,
the South African and MENA regions the most inecient.
Finally, the results suggested that informational eciency
was negatively related to nancial crises.
In sum, the global eciency of markets has important
implications for both domestic and international investors,
such as attracting domestic and foreign portfolio investment
and improving the resource allocation.
It will be interesting in the future to apply the modied
Shannon entropy to other nancial time series such as ex-
change and commodity markets or to test the relationship
between level eciency and nancial reforms using condi-
tionally heteroscedastic models.
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