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This paper investigates the issue of whether financial market liberalization announcements in emerging economies have had any effects on the efficient operation of their equity markets. The issue is empirically examined in the case of Greece, and its emerging stock market, the Athens Stock Exchange (ASE). The sequence of tests conducted, ranging from tests of structural change to several efficiency tests, suggest that the Greek equity market was weak‐form efficient before these announcements were made. Hence, the ASE was operating as a random walk hinting that investors could not engage in systematically profitable ventures because future long‐term returns were independent of past returns. In other words, foreign and local investors guided their strategies based on the fundamentals and not on speculative grounds.

The introduction of the euro followed a period of restructuring in corporate Europe and contributed towards the integration of financial markets and transparency in equity pricing. In this process the euro facilitated the development of alliances among exchanges and infrastructure providers. As argued in this paper, while the ability of issuers to place larger issues was enhanced after the advent of the new currency, the euro was not the main reason behind the extraordinary IPO activity observed in the period after 1998. Other factors, such as the need of corporations to consolidate and compete on a domestic and cross-border basis within the European Union, are deemed to be more important.

The paper presents a treatment for the measurement and disclosure of market and credit risks in the context of capital adequacy regulation. The proposed approach is in conformity with the Basle Committee's latest proposal on risk measurement, and is based on the Value-at-Risk (VaR) methodology. This approach is applied to investments in close-end country funds of emerging markets. For 13 .such funds listed in the New York Stock Exchange during the period October 1994 to December 1997, the average VaR estimate is found to be well above the capital adequacy ratio of 8% required by most regulatory authorities and to be sensitive to the emergence of increased financial turbulence.

The 2007 BIS Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity Report shows a substantial increase in turnover in foreign exchange and OTC derivatives markets. Turnover in traditional FX markets increased to reach $3.2 trillion. The largest contributor to this 71% increase between April 2004 and April 2007 occurred in FX swaps. It was like a prelude to the financial crisis of 2007–2008 driven by transactions carried out between banks and other financial institutions due to the significance of hedge funds and major engagement of emerging market currencies which have sought new configurations of portfolio diversification worldwide.

This paper aims to present a framework enriching currency risk analyses based on information theory.

Information-theoretic measures of predictability (entropy rate) and co-dependence (mutual information) are used to enhance existing methods of analysing and measuring currency risk.

The currency exchange rates have varying degrees of predictability, which should be accounted for in currency risk analyses. In case of baskets of currencies, a network approach rooted in portfolio theory may be useful.

The currency exchange rate time series must be discretised for the information-theoretic analysis (although the results are robust). An agent-based simulation may be a necessary further study to show what the impact of accounting for predictability in managing currency risk is.

Practical analyses measuring currency risk should take predictability of currency rate changes into account wherever the currency exposure is actively managed.

The paper introduces predictability into measuring currency risk, which has previously been ignored, despite the nature of the risk being inherently tied to uncertainty of the currency rate changes. The paper also introduces a portfolio theory-based approach to quantifying currency risk, which accounts for non-linear co-dependence in the currency markets.