Do emerging markets become more efficient as they develop? Long memory persistence in equity indices Matthew Hull, Frank McGroarty ⁎ University of Southampton, Southampton Management School, Highfield, Southampton, Hampshire SO17 1BJ, UK article info abstract Article history: Received 18 July 2012 Received in revised form 26 September 2013 Accepted 6 November 2013 Available online 15 November 2013 It seems reasonable to expect financial market efficiency to be related to the economic development level. We study a 16 year sample, covering 22 countries. The Hurst–Mandelbrot–Wallis rescaled range is our efficiency measure, which we apply to returns and volatility. We find strong evidence of long memory persistence in volatility over time, which is unsurprising. However, unlike previous researchers, we could not find evidence of rescaled ranges trending down over time. However, we introduce an alternative measure of economic develop- ment, namely, whether FTSE (2011) classify an emerging market as ‘advanced’ or ‘secondary’. This measure shows greater efficiency in returns and volatility for ‘advanced’ emerging markets. © 2013 Elsevier B.V. All rights reserved. Keywords: Rescaled range Hurst exponent Long memory Market efficiency Development 1. Introduction According to the weak form of the Efficient Market Hypothesis (EMH), asset prices should exhibit no pattern that could enable future prices to be forecast with any consistency. Consequently, asset returns are supposed to be normally distributed and sequentially independent. In other words, asset returns should exhibit no long-term memory of the price series that precedes it. In this paper, we measure long-term memory by means of the rescaled range methodology. If this measure shows either persistence or anti-persistence (i.e. mean reversion), then a trading strategy utilising that information could earn an abnormal profit. On the other hand, asset returns which are neither persistent nor anti-persistent are unpredictable, therefore cannot be exploited for profit and so would be an affirmation of the EMH. One would expect that if market inefficiencies do exist, then they should be more prevalent in unsophisticated, under-researched markets rather than in highly developed markets. Moreover, as financial markets evolve from a primitive to a sophisticated state, one would expect to see a steady progression in their Emerging Markets Review 18 (2014) 45–61 ⁎ Corresponding author. Tel.: +44 23 8059 2540. E-mail address: f.j.mcgroarty@soton.ac.uk (F. McGroarty) 1566-0141/$ – see front matter © 2013 Elsevier B.V. All rights reserved. http://dx.doi.org/10.1016/j.ememar.2013.11.001 Contents lists available at ScienceDirect Emerging Markets Review journal homepage: www.elsevier.com/locate/emr