GLOBAL FINANCIAL CRISIS AND UNIT-LINKED INSURANCE MARKETS EFFICIENCY: EMPIRICAL EVIDENCE FROM CENTRAL AND EASTERN EUROPEAN COUNTRIES

This paper empirically investigates the impact of the Global financial crisis on the efficiency of four Central and Eastern European emerging unit-linked insurance markets, applying the automatic variance ratio (AVR) test of Kim (2009) and variance ratio tests using ranks and signs by Wright (2000) for entire, pre-crisis and crisis periods. This study contributes to the existing literature on efficient market hypothesis with several distinct features: it provides a systematic review of the weak-form market efficiency literature that examines return predictability of the daily ING unit-linked funds prices; also the article aims at monitoring any improvement in the degree of efficiency in time and also examines the relative efficiency of unit-linked insurance markets in pre-crisis and crisis periods. Unit linked insurance are life insurance policies with investment component. In the literature there are few studies investigating the effects of a financial crisis on the potential of predictability and implicitly on the degree of efficiency of financial markets. The occurrence of a market crash or financial crisis is a possible contributing factor of market inefficiency. Most of the studies are focused on the Asian crisis in 1997: Holden et al. (2005) examined the weak-form efficiency of eight emerging Asian stock markets using VR tests before, during and after the Asian crisis; Kim and Shamsuddin (2008) used three different types of multiple VR tests for nine Asian stock markets; the findings reported by Lim et al. (2008) are consistent with those reported by Cheong et al. (2007), in which the highest inefficiency occurs during the crisis period. Todea and Lazar (2010) investigated the effects of the Global crisis on the relative efficiency of ten CEE stock markets, using Generalized Spectral test of Escanciano and Velasco (2006). Wright (2000) proposes the alternative non-parametric variance ratio tests using ranks and signs of return and demonstrates that they may have better power properties than other variance ratio tests. Kim (2009) found that the wild bootstrap AVR significantly improves the size and power properties of the AVR test. Using the bootstrapped automatic VR test developed by Kim (2009) and Wright'(tm)s test, the statistical findings show that the degree of the markets'(tm) inefficiency varies through time and surprisingly the empirical results suggest that the Global crisis led to a decrease of predictability and hence to an improvement of relative efficiency for five of the eight ING funds.