Financial liberalization and stock markets efficiency: New evidence from emerging economies

- The contribution of this article consists in using a treatment effects model and three types of financial crises.
- Emerging stock markets became more efficient in the last decades.
- Emerging countries benefited from financial openness in terms of informational efficiency.
- Financial liberalization tends to reduce the probability of financial crises.
- The stock market efficiency improvement depends upon several internal characteristics.

This paper aims to assess the impact of financial liberalization on the degree of informational efficiency in emerging stock markets while considering three types of financial crises, i.e. banking, currency and twin crises. To this end, a treatment effects model with time-varying parameters is estimated for 13 emerging economies from January 1986 to December 2008. Empirical results show that there is a greater efficiency in recent years and that financial liberalization not only improves the degree of efficiency but also reduces the probability of financial crises. They also suggest that improving efficiency depends upon several internal characteristics.