Evolution of Information Efficiency inEmerging Markets

摘要

In the article we investigate the informational efficiency of NasdaqOMX Baltic stock exchange by applying Shannon's entropy measure for symbol-ized time series. The complexity of the problem of market efficiency evaluationhas lead to application of various soft computing methods and to even contradic-tory outcomes confirming or denying the efficient market hypothesis. The goal ofthe article is to explore the possibilities of quantitative evaluation of market effec-tiveness, by presenting the computational method and its experimental researchfor the financial data of the emerging Baltic market. The computations were per-formed for different time spans and symbolic word lengths. The research resultsallowed to conclude that the efficiency of Baltic market strongly falls behind thedeveloped countries, and it raises expectations for modelling profitable tradingstrategies. Application of the entropy measure allows to explore the evolution ofthe market efficiency and to apply the algorithm for predicting the forthcomingcrises of financial markets.