Technology shocks and the efficiency of equity markets in the developed and emerging economies : a global VAR approach

Abstract

We tested the connection between technology shocks and the efficiency of equity markets in developed and emerging economies. We augmented the Global Vector Autoregressive (GVAR) database that covers data on 33 developed and emerging markets with the newly constructed data for technology shocks involving two variants, one with 164 countries (GTS-164), and the other, which is more region-specific. covering only Organization for Economic Co-operation and Development (OECD) countries (GTS-OECD). Our analysis was then modeled with GVAR methodology. We found that a one standard positive innovation shock to global technology (GTS-164) raises real equity prices in nearly 70% of the markets considered, and this is sustained over the forecast periods. However, the response of real equity prices to a global-specific technology shock (GTS-OECD) is rather different. While this shock resulted in the immediate rise in real equity prices, it is only transient and dissipated after the third quarter of the forecast horizon in about 85% of these markets. By implication, the efficiency of the real equity market was assured for the region-specific technology shock rather than for the more encompassing measurement that takes account of numerous markets, not minding whether these markets are developed or emerging. In sum, technological shocks seem to have greater impacts on the efficiency of developed (including Euro) markets than other markets.