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.