Capital Market Efficiency in Asia: An Empirical Analysis

6th International Scientific Conference – EMAN 2022 – Economics and Management: How to Cope With Disrupted Times, Ljubljana, Slovenia, March 24, 2022, SELECTED PAPERS, published by: Association of Economists and Managers of the Balkans, Belgrade, Serbia; ISBN 978-86-80194-58-5, ISSN 2683-4510

Abstract:

This paper aims to test efficiency, in its weak form, in the capi­tal markets of the Philippines (PSEi), South Korea (KOSPI), Indonesia (JKSE), Thailand (SET), Malaysia (KLCI), China (SSEC) and Hong Kong (HSI) over the period from January 2, 2017, to February 17, 2022. The return series shows signs of deviation from the normality hypothesis, given the skewness and kurtosis coefficients. The results, therefore, support the conclusion that the random walk hypothesis is not supported by the indices, the values of the variance ratios are in all cases less than unity, implying that the returns are autocorrelated over time and there is mean reversion in all indices. The re­sults obtained allow for the rejection of the random walk hypothesis and the informational efficiency hypothesis of financial markets. These findings also open room for market regulators to pursue measures to ensure better infor­mation in these regional markets.

Keywords:

Asian Markets; Variance ratio; Random walk; Arbitrage

REFERENCES

Bachelier, L. (1900). Théorie de la spéculation. Annales Scientifiques de l’École Normale Supérieure. https://doi.org/10.24033/asens.476

Cowles, A. (1933). Can Stock Market Forecasters Forecast? Econometrica. https://doi. org/10.2307/1907042

Cowles, A. (1944). Stock Market Forecasting. Econometrica. https://doi.org/10.2307/1905433

Dias, R. T., Pardal, P., Santos, H., & Vasco, C. (2021). Testing the Random Walk Hypothesis for Real Exchange Rates. June, 304–322. https://doi.org/10.4018/978-1-7998-6926-9.ch017

Dias, R., Teixeira, N., Machova, V., Pardal, P., Horak, J., & Vochozka, M. (2020). Random walks and market efficiency tests: Evidence on US, Chinese and European capital mar­kets within the context of the global Covid-19 pandemic. Oeconomia Copernicana, 11(4). https://doi.org/10.24136/OC.2020.024

Dias, R., Alexandre, P., Vasco, C., Heliodoro, P., & Santos, H. (2021). Random Walks and Market Efficiency: Gold, Platinum, Silver Vs Asia Equity Markets. 5th EMAN Confer­ence Proceedings (Part of EMAN Conference Collection), 55–70. https://doi.org/10.31410/ eman.2021.55

Dias, R., Heliodoro, P., Alexandre, P., Santos, H., & Farinha, A. (2021). Long memory in stock returns: Evidence from the Eastern European markets. SHS Web of Conferences, 91, 01029. https://doi.org/10.1051/shsconf/20219101029

Dias, R., Heliodoro, P., Alexandre, P., Santos, H., & Vasco, C. (2021). Market Efficiency in Its Weak Form: the Pre-Covid and Covid Indonesia Analysis. 5th EMAN Conference Proceed­ings (Part of EMAN Conference Collection), 1–11. https://doi.org/10.31410/eman.2021.1

Dias, R., Heliodoro, P., Teixeira, N., & Godinho, T. (2020). Testing the Weak Form of Effi­cient Market Hypothesis: Empirical Evidence from Equity Markets. International Jour­nal of Accounting, Finance and Risk Management, 5(1), 40. https://doi.org/10.11648/j. ijafrm.20200501.14

Dias, R., & Pereira, J. M. (2021). The Impact of the COVID-19 Pandemic on Stock Markets. In­ternational Journal of Entrepreneurship and Governance in Cognitive Cities, 1(2), 57–70. https://doi.org/10.4018/ijegcc.2020070105

Dias, R., Pereira, J. M., & Carvalho, L. C. (2022). Are African Stock Markets Efficient? A Com­parative Analysis Between Six African Markets, the UK, Japan and the USA in the Period of the Pandemic. Naše Gospodarstvo/Our Economy, 68(1), 35–51. https://doi.org/10.2478/ ngoe-2022-0004

Dias, R., & Santos, H. (2020). Stock Market Efficiency in Africa: Evidence From Random Walk Hypothesis. 6th LIMEN Conference Proceedings (Part of LIMEN Conference Collection), 25–37. https://doi.org/10.31410/limen.2020.25

Dias, R., Santos, H., Alexandre, P., Heliodoro, P., & Vasco, C. (2021). Random Walks and Market Efficiency Tests: Evidence for Us and African Capital Markets. 5th EMAN Selected Papers (Part of EMAN Conference Collection), 17–29. https://doi.org/10.31410/eman.s.p.2021.17

Dickey, D., & Fuller, W. (1981). Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica, 49(4), 1057–1072. https://doi.org/10.2307/1912517

Fama, E. F., & French, K. R. (1988). Dividend yields and expected stock returns. Journal of Fi­nancial Economics, 22(1), 3–25. https://doi.org/10.1016/0304-405X(88)90020-7

Gibson, G. R. (1889). The Stock Markets of London, Paris and New York. G.P. Putnam’s Sons.

Granger, C. W. J., & Morgenstern, O. (1963). Spectral Analysis of New York Stock Market Prices. Kyklos. https://doi.org/10.1111/j.1467-6435.1963.tb00270.x

Heliodoro, P., Dias, R., & Alexandre, P. (2020). Financial Contagion Between the Us and Emerg­ing Markets: Covid-19 Pandemic Case. 4th EMAN Selected Papers (Part of EMAN Con­ference Collection), 1–9. https://doi.org/10.31410/eman.s.p.2020.1

Im, K. S., Pesaran, M. H., & Shin, Y. (2003). Testing for unit roots in heterogeneous panels. Journal of Econometrics. https://doi.org/10.1016/S0304-4076(03)00092-7

Levin, A., Lin, C. F., & Chu, C. S. J. (2002). Unit root tests in panel data: Asymptotic and finite-sam­ple properties. Journal of Econometrics. https://doi.org/10.1016/S0304-4076(01)00098-7

Lo, A. W., & MacKinlay, A. C. (1988). Stock Market Prices Do Not Follow Random Walks: Evidence from a Simple Specification Test. Review of Financial Studies. https://doi. org/10.1093/rfs/1.1.41

Osborne, M. F. M. (1959). Brownian Motion in the Stock Market. Operations Research. https:// doi.org/10.1287/opre.7.2.145

Phillips, P. C. B., & Perron, P. (1988). Testing for a unit root in time series regression. Biometri­ka, 75(2), 335–346. https://doi.org/10.1093/biomet/75.2.335

Roberts, H. V. (1959). Stock‐Market “Patterns” and Financial Analysis: Methodological Sugges­tions. The Journal of Finance. https://doi.org/10.1111/j.1540-6261.1959.tb00481.x

Rosenthal, L. (1983). An empirical test of the efficiency of the ADR market. Journal of Banking & Finance, 7(1), 17–29. https://doi.org/10.1016/0378-4266(83)90053-5

Santos, H., Dias, R., Vasco, C., Alexandre, P., & Heliodoro, P. (2021). Has the Global Pandem­ic of 2020 Led To Persistence in the Share Prices of Large Global Companies? 5th EMAN Selected Papers (Part of EMAN Conference Collection), 1–15. https://doi.org/10.31410/ eman.s.p.2021.1

Silva, R., Dias, R., Heliodoro, P., & Alexandre, P. (2020). Risk Diversification in Asean-5 Fi­nancial Markets: an Empirical Analysis in the Context of the Global Pandemic (Covid-19). 6th LIMEN Selected Papers (Part of LIMEN Conference Collection), 15–26. https://doi. org/10.31410/limen.s.p.2020.15

Takyi, P. O., & Bentum-Ennin, I. (2020). The impact of COVID-19 on stock market perfor­mance in Africa: A Bayesian structural time series approach. Journal of Economics and Business. https://doi.org/10.1016/j.jeconbus.2020.105968

Vasco, C., Pardal, P., & Dias, R. T. (2021). Do the Stock Market Indices Follow a Random Walk? May, 389–410. https://doi.org/10.4018/978-1-7998-6643-5.ch022

Working, H. (1949). The investigation of economic expectations. The American Economic Review.

Zebende, G. F., Santos Dias, R. M. T., & de Aguiar, L. C. (2022). Stock market efficiency: An in­traday case of study about the G-20 group. Heliyon, 8(1), e08808. https://doi.org/10.1016/j. heliyon.2022.e08808