Capital Market Efficiency in Asia: An Empirical Analysis (original) (raw)
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Abstract One of the most contentious issues in finance is possibly whether the financial markets are efficient or not. When determining the market efficiency, Efficient Market Hypothesis (EMH) has attracted the interest of greater number of academics and practitioners in empirical finance literature. However, empirical studies of the market efficiency in the two regimes of high and low volatility are still unexplored. Thus, this study attempts to identify the random work behaviour in high and low volatility regimes in emerging financial markets namely, India, China, Indonesia, Korea, Malaysia, Taiwan and Philippine. Returns of daily, weekly and monthly of the market portfolios from 2000 to 2010 are used for the investigation. Primarily, the Iterated Cumulative Sums of Squares (ICSS) algorithm and GARCH regression are used to identify the volatility breaks and for the purpose of subdividing the original series in to low volatile and high volatile regimes. Subsequently, popular econom...
The Stock Market Efficiency of Emerging Markets: Evidence from Asian Region
Asian Social Science, 2014
This research paper investigates the efficiency of stock market and volatility behavior of eight Asian Emerging market indices. This study used the secondary daily time series data for the period of ten years from 01-01-2004 to 31-12-2013. The Econometric models (GARCH, Autocorrelation and Runs Test) where used to test the volatility and market efficiency of Asian emerging stock markets. Besides, the long run relationship was studied. The Hypotheses about the importance of different channels are tested .This paper provides significant evidences of market efficiency and randomness distribution in these emerging Asian markets. The findings of this study will be useful for investing Community, Government and Policy Regulators in these sample countries.
This paper examines the weak-form market efficiency of Asian equity markets. Daily returns for ten emerging (China, India, Indonesia, Korea, Malaysia, Pakistan, the Philippines, Sri Lanka, Taiwan and Thailand) and five developed markets (Australia, Hong Kong, Japan, New Zealand and Singapore) are examined for random walks using serial correlation coefficient and runs tests, Augmented Dickey-Fuller, Phillips-Perron and Kwiatkowski, Phillips, Schmidt and Shin unit root tests and multiple variance ratio tests. The serial correlation and runs tests conclude that all of the markets are weak-form inefficient. The unit root tests suggest weakform efficiency in all markets, with the exception of Australia and Taiwan. The results from the more stringent variance ratio tests indicate that none of the emerging markets are characterised by random walks and hence are not weak-form efficient, while only the developed markets in Hong Kong, New Zealand and Japan are consistent with the most stringent random walk criteria.
Market efficiency in emerging stock markets: A case study of the Vietnamese stock market
Investors and researchers have been paying increasing attention to the emerging stock markets. In this research we study whether or not weak-form efficiency, which is relatively popular in emerging stock markets, holds for the Vietnamese stock market. We check the random walk hypothesis for weekly stock market returns employing three statistical techniques namely autocorrelation test, variance ratio test, and runs test. Data for analysis was collected from July 28 th 2000 (the first trading session) to July 28 th 2013 (13 years of market operation). Through the graph showing movements in daily prices of the chosen representative stocks and the Vietnam stock index (VN-Index), it is visual that the Vietnamese stock market is not efficient; the fact that psychological factors strongly influence investors is among elements making stock prices predictable. Estimated results have strongly rejected the random walk hypothesis for the whole period of the samples and for the first two cycles of the market (except for the third cycle). Particularly results from the third cycle of the Vietnamese stock market alone (from February 24 th 2009 to July 28 th 2013) have provided evidence supporting random walk hypothesis in VN-index. It shows the fact that the efficiency of the Vietnamese stock market has gradually been improved during nearly 10 years in operation. The main conclusion drawn from results of this research is that it may be the case that the weak-form efficient market hypothesis does not hold for the Vietnamese stock market.
Efficiency in Stock Markets a Review of Literature
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This study aimed at revisiting and divulging the existing empirical evidence regarding the informational efficiency and random walk in stock markets of developed and emergent markets. The critical analysis of statistical tools used is out of the purview of this study. Most of the empirical literature on the topic after the seminal work of Fama (1965a) is based on the developed markets. However, emergent markets received greater attention of the researchers after the huge inflow of capital in these markets after financial liberalization. Review of literature reveals varied results for efficiency and random walk in case of developed and emerging markets. Developed markets empirically found to be more efficient than emergent markets. Highly contradictory results are observed for emerging markets depending on the size, influence of insider trader, market integration, liberalization, trading volume, trading process, and infrequent trading. Empirical evidence in favour or against efficien...
Random Walks and Market Efficiency Tests: Evidence from Emerging Equity Market of Kuwait
European Journal of Economics, Finance and Administrative Sciences, 2011
This paper examines the random walk theory and the efficient market hypothesis of Kuwait equity market. The study uses daily observation of Kuwait stock exchange (KSE) index from 17 June 2001 to 8 December 2010. Parametric and nonparametric tests are utilized to examine the randomness of KSE. The parametric tests include the serial correlation test, and the Augmented Dickey-Fuller (unit root) test. The nonparametric tests employ the runs test and Phillips-Peron (PP) test. The empirical findings suggest the KSE is informationally inefficient at the weak-form level indicating that prudent investors will realize abnormal returns by using historical data of stock prices and trading volume.
Testing Weak form Market Efficiency: Empirical Evidence from Selected Asian Stock Markets
Asian Economic and Financial Review
This empirical study examines stock market efficiency of selected fifteen countries from the Asian region using weekly stock returns from the year 2001 to 2017. In order to test the market efficiency, the following statistical methods were conducted on the realized returns: Auto Correlation, Q Statistics, Correlation Matrix, Unit Root Test, and Run Test. It is revealed that the weekly return is not normally distributed as the historical returns from the considering markets are negatively skewed. We came up to a conclusion that weekly returns do not follow the random walk as it rejects the null hypothesis. Therefore, it may be possible for the investors to gain an arbitrage profit by investing in any of the markets in consideration. Contribution/ Originality: This study is one of very few studies which have investigated the weak form market efficiency in selected capital markets from the Asian region. This paper also contributes in the existing literature of finance by testing the existence of random walk theory in the stated context.
Random Walks and Market Efficiency in Chinese and Indian Equity Markets
Statistics, Optimization & Information Computing
Hypothesis of Market Efficiency is an important concept for the investors across the globe holding diversified portfolios. With the world economy getting more integrated day by day, more people are investing in global emerging markets. This means that it is pertinent to understand the efficiency of these markets. This paper tests for market efficiency by studying the impact of global financial crisis of 2008 and the recent Chinese crisis of 2015 on stock market efficiency in emerging stock markets of China and India. The data for last 20 years was collected from both Bombay Stock Exchange (BSE200) and the Shanghai Stock Exchange Composite Index and divided into four sub-periods, i.e. before financial crisis period (period-I), during recession (period-II), after recession and before Chinese Crisis (period-III) and from the start of Chinese crisis till date (period-IV). Daily returns for the SSE and BSE were examined and tested for randomness using a combination of auto correlation tests, runs tests and unit root tests (Augmented Dickey-Fuller) for the entire sample period and the four sub-periods.
Market Efficiency of ASEAN Stock Markets
Asian Economic and Financial Review
In this paper, we examine the stock market efficiency of the members of the Association of South East Asian Nations (ASEAN). We use the conventional individual variance ratio tests like the Lo and MacKinlay (1988) test, Choi (1999) test, Wright (2000) test and Chen and Deo (2006)) test to check for the efficient market hypothesis in these markets. We also perform the spectral shape test of Durlauf (1991) and Average exponential test as in Andrews and Ploberger (1996) to check for the serial correlations in these stock indices. This study rejects the efficient market hypothesis for the stock markets of Indonesia, Malaysia, Philippines, Thailand and Vietnam. However, we find that the stock markets in Cambodia, Lao and Singapore are weak form efficient. This study is essential for the policy makers of ASEAN member nations who attempt to introduce new financial regulations to make their markets more attractive to the investors by making the stock markets efficient.
Random walks and market efficiency tests: evidence from emerging equity markets
Review of Quantitative Finance and …, 1999
We use the multiple variance-ratio test of to examine the stochastic properties of local currency-and US dollar-based equity returns in 15 emerging capital markets. The technique is based on the Studentized Maximum Modulus distribution and provides a multiple statistical comparison of variance-ratios, with control of the joint-test's size. We ®nd that the random walk model is consistent with the dynamics of returns in most of the emerging markets analyzed, which contrasts many random walk test results documented with the use of single variance-ratio techniques. Further, a runs test suggests that most of the emerging markets are weak-form ef®cient. Overall, our results suggest that investors are unlikely to make systematic nonzero pro®t by using past information in many of the examined markets, thus, investors should predicate their investment strategies on the assumption of random walks. Additionally, our results suggest exchange rate matters in returns' dynamics determination for some of the emerging equity markets we analyzed.