Financial market liberalization and stock market efficiency: the case of Greece

This paper investigates the issue of whether financial market liberalization announcements in emerging economies have had any effects on the efficient operation of their equity markets. The issue is empirically examined in the case of Greece, and its emerging stock market, the Athens Stock Exchange (ASE). The sequence of tests conducted, ranging from tests of structural change to several efficiency tests, suggest that the Greek equity market was weak‐form efficient before these announcements were made. Hence, the ASE was operating as a random walk hinting that investors could not engage in systematically profitable ventures because future long‐term returns were independent of past returns. In other words, foreign and local investors guided their strategies based on the fundamentals and not on speculative grounds.