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The objective of this study is to examine the impact of economic openness on the efficiency of 25 emerging stock markets. By employing two measures of market efficiency, variance ratios with different time lags and short‐run reversal returns, we find that in majority of the emerging markets in our sample, there is strong evidence to show that the market efficiency improves with market openness. This effect is robust and stronger when we measure variance ratio with longer horizons. When using the reversal returns to measure efficiency, the results are weaker. However, there is no evidence showing that liberalization of the market would impede the market efficiency. The overall results suggest that market openness reduces a stock price's departure from a random walk.
Bai et al. (Sat,) studied this question.