Time-varying long term memory in the European Union stock markets

• We propose a new efficiency index to model time-varying inefficiency in stock markets.
• We focus on European markets and show that they have different degrees of time-varying efficiency.
• The 2008 global financial crisis has an adverse effect on almost all EU stock markets.
• Eurozone debt crisis has a significant adverse effect only on the markets in France, Spain and Greece.
• For the late members, joining EU does not have a uniform effect on market efficiency.

This paper proposes a new efficiency index to model time-varying inefficiency in stock markets. We focus on European stock markets and show that they have different degrees of time-varying efficiency. We observe that the 2008 global financial crisis has an adverse effect on almost all EU stock markets. However, the Eurozone sovereign debt crisis has a significant adverse effect only on the markets in France, Spain and Greece. For the late members, joining EU does not have a uniform effect on stock market efficiency. Our results have important implications for policy makers, investors, risk managers and academics.