Is Malaysian Stock Market Efficient? Evidence from Threshold Unit Root Tests

This paper investigates the behavior of Kuala Lumpur Stock Exchange Composite Index (KLCI) for the period from 1980:1 to 2008:8 using a two-regime threshold autoregressive (TAR) model with an autoregressive unit root developed by Caner and Hansen [Threshold autoregression with a unit roots, Econometrics 69 (6) (2001) 1555-1596] which allows testing nonlinearity and nonstationarity simultaneously. Our finding indicates that the KLCI is a nonlinear series that is characterized by a unit root process, consistent with the efficient market hypothesis.Efficient Market Hypothesis, Threshold Autoregressive Model, Unit Root.

Efficient market hypothesis in emerging markets: Panel data evidence with multiple breaks and cross sectional dependence

The purpose of this paper is to re-examine whether mean reversion property hold for 15 emerging stock markets for the period 1985 to 2006. Utilizing a panel stationarity test that is able to account for multiple structural breaks and cross sectional dependence, we find that the emerging stock markets follow a random walk process. However, further analysis on individual series show that the majority of stock prices in emerging markets are governed by a mean reverting process. This result, which is inconsistent with efficient market hypothesis, suggests that past information is useful in predicting future prices in most of the markets

The Behavior of Indonesian Stock Market: Structural Breaks and Nonlinearity

This study empirically examines the behaviour of Indonesian stock market under the efficient market hypothesis framework by emphasizing on the random walk behaviour and nonlinearity over the period of April 1983 - December 2010. In the first step, the standard linear unit root test, namely the augmented Dickey-Fuller (ADF) test, Phillip-Perron (PP) test and Kwiatkowski-Philllips-Schmidt-Shin (KPSS) test identify the random walk behaviour in the indices. In order to take account the possible breaks in the index series Zivot and Adrews (1992) one break and Lumsdaine and Papell (1997) two breaks unit root test are employed to observe whether the presence of breaks in the data series will prevent the stocks from randomly pricing or vice versa. In the third step, we employ Harvey et al. (2008) test to examine the presence of nonlinear behaviour in Indonesian stock indices. The evidence of nonlinear behaviour in the indices, motivate us to use nonlinear unit root test procedure recently developed by Kapetanios et al. (2003) and Kruse (2010). In general, the results from standard linear unit root test, Zivot and Adrews (ZA) test and Lumsdaine and Papell (LP) test provide evidence that Jakarta Composite Index characterized by a unit root. In addition, structural breaks identified by ZA and LP test are corresponded to the events of financial market liberalization and financial crisis. The nonlinear unit root test procedure fail to rejects the null hypothesis of unit root for all indices, suggesting that Jakarta Composite Index characterized by random walk process supporting the theory of efficient market hypothesis.    

Do shocks to G7 stock prices have a permanent effect? : evidence from panel unit root tests with structural change

There is a plethora of studies that investigate evidence for the behaviour of stock prices using univariate techniques for unit roots. Whether or not stock prices are characterised by a unit root have implications for the efficient market hypothesis, which asserts that returns of a stock market are unpredictable from previous price changes. The extant literature has found mixed evidence on the integrational properties of stock prices. In this paper, for the first time, we provide evidence on the unit root hypothesis for G7 stock price indices using the Lagrangian multiplier panel unit root test that allows for structural breaks. Our main finding is that stock prices are stationary processes, inconsistent with the efficient market hypothesis.<br /

Persistence and long run co-movements across stock market prices.

post-print1696 K

Unit root modeling for trending stock market series

In this paper, we examine how the unit root for stock market series should be modeled. We employ the Narayan and Liu (2015) trend GARCH-based unit root and its variants in order to more carefully capture the inherent statistical behavior of the series. We utilize daily, weekly and monthly data covering nineteen countries across the regions of America, Asia and Europe. We find that the nature of data frequency matters for unit root testing when dealing with stock market data. Our evidence also suggests that stock market data is better modeled in the presence of structural breaks, conditional heteroscedasticity and time trend

Essays on Turkish Equity Market

on the Turkish Equity Market is a critical examination of dynamic properties of the price formation in the Turkish equity market. Chapter 1 examines the evidence of a weak-form efficiency of the Turkish equity market (TEM). A wide range of equity indexes and statistical tests, such as autocorrelation, stationarity, unit root, and variance ratio tests and estimation of the GARCH-In-Mean model, are employed to examine the random walk and martingale hypothesis in TEM. The results are effectively uniform and provide little supporting evidence regarding TEM's weak-form market efficiency hypothesis. Chapter 2 makes a significant contribution to understanding the time-varying efficiency of TEM. We examine the validity and persistence of the size effect in the cross-section of Turkish equity returns while correcting for the effects of noisy prices using the buy-and-hold method implemented in the literature. The size effect for the overall sample period of 18 years is consistent with the estimates for developed markets but, as expected, becomes statistically insignificant when the biases in computed returns are alleviated by calculating the buy-and-hold and risk-adjusted returns. Chapter 3 is a novel attempt to re-examine the time-varying efficiency of TEM, particularly using a natural experiment recently presented when Turkey faced the potential downgrade by MSCI from the emerging to the frontier market status in 2020. Turkey is similar to other emerging markets going through reversals in the degree of integration with the rest of the world. The decrease in the Turkey market betas from the historical highs is unlikely to signal a decrease in exposure to systematic risk and is more likely to be related to a prolonged decline in the market sentiment and a significant decrease in the degree of TEM integration. We also illustrate the likely effect of institutional investment flow on market betas of listed equities

Performance persistence of South African unit trust funds

Dissertation (MPhil (Financial Management Sciences))--University of Pretoria, 2021.The optimality of active or passively managed investment fund alternatives is a contentious topic in the field of investment management. The efficient market hypothesis states that active funds should not be able to derive net-of-fee risk-adjusted returns in excess of their benchmarks on a persistent basis. However, emerging market economies such as South Africa that have less efficient markets, present active managers with greater opportunities to persistently outperform after fees have been accounted for. This study evaluates the performance persistency of actively managed South African equity, interest-bearing, multi asset, and real estate unit trust funds relative to investable passive alternatives. The rolling holding period performance of actively managed unit trusts relative to investable passive alternatives are assessed by making use of notched boxplots. Active funds are classified as persistent out- or underperformers if the median of their rolling period excess return distributions relative to their respective passive alternatives is significantly different from zero at a 5% level of significance. This study finds that a greater proportion (83.969%) of active funds persistently out- or underperform their comparable passive alternatives. More evidence of persistently outperforming funds is found amongst interest-bearing and real estate funds. Conversely, a greater number of persistently underperforming funds are found amongst equity and multi asset funds. Furthermore, this study concludes that other determinants of unit trust fund performance persistence such as the degree of competition, sector- and fund-level diseconomies of scale, and investment charges should supplement the analysis of a fund’s performance history when making future investment decisions.Financial ManagementMPhil (Financial Management Sciences)Unrestricte