Stock Market Efficiency in Developing Economies

This article analyses the degree of stock market efficiency in three emerging economies-India, China and Brazil. It tests to see if US stock returns have an influence on endogenous stock returns, even after controlling for domestic macroeconomic variables. A country-specific vector auto-regression model is used to test the short-run effects and the fully modified ordinary least square procedure has been used to find the long-run relationship, thus checking for degree of efficiency in these stock markets. The results indicate that, despite controlling for key domestic stock return deter-minants, US stock returns have a significant positive relationship with the stock returns of all three countries.