MARKET EFFICIENCY IN THE EMERGING SECURITIZED REAL ESTATE MARKETS

This paper conducts tests of the random walk hypothesis and market efficiency for twelve emerging securitized real estate markets as well as for four developed securitized real estate markets from 1992 to 2009. Random walk properties of equity prices influence return dynamics and market efficiency is often considered as an essential criteria for judging the functionality of markets and the asset pricing process which is of significant relevance for emerging markets in particular. The analysis is based on autocorrelation tests and the single variance ratio tests of Lo and MacKinlay (1988) as well as the multiple variance ratio test of Chow and Denning (1993). Weak-form market efficiency is tested directly using non-parametric runs tests. Empirical evidence shows that the efficient market hypothesis in its weak form is not rejected by any statistical test for seven out of the twelve analyzed emerging securitized real estate markets. This result is surprising since all four analyzed developed securitized real estate stock markets do not follow a random walk.