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Fundamental Value Hypothesis and Return Behavior: Evidence from Emerging Equity Markets

Author

Listed:
  • Benjamas Jirasakuldech

    (University of the Pacific, Eberhardt School of Business, 3601 Pacific Avenue, Stockton, CA 95211, USA)

  • Riza Emekter

    (Sakarya University, Adapazari 54184, Turkey)

  • Peter Went

    (Bucknell University, Department of Management, 312 Taylor Hall, Lewisburg, PA 17837, USA)

Abstract

This study examines the return behavior of 15 emerging equity markets for persistent deviations from the fundamental value hypothesis. The duration dependence test shows that rational expectations bubble do not cause deviations from fundamental value in any of the markets. Markov chain test results imply that markets in China, Malaysia, the Philippines, and Singapore deviate from their fundamental values due to non-random price changes. A price decrease is more likely to follow two periods of price decrease in these four equity markets. Finally, time reversibility test reveals that all equity markets, except for Jordan and Egypt, exhibit asymmetrical price patterns, suggesting departures from fundamental values.

Suggested Citation

  • Benjamas Jirasakuldech & Riza Emekter & Peter Went, 2006. "Fundamental Value Hypothesis and Return Behavior: Evidence from Emerging Equity Markets," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 9(01), pages 97-127.
    • Handle: RePEc:wsi:rpbfmp:v:09:y:2006:i:01:n:s0219091506000689
    DOI: 10.1142/S0219091506000689
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    References listed on IDEAS

    as
    1. Mohamed A. El-Erian & Manmohan S. Kumar, 1995. "Emerging Equity Markets in Middle Eastern Countries," IMF Staff Papers, Palgrave Macmillan, vol. 42(2), pages 313-343, June.
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    Cited by:

    1. Robert J. Bianchi & Michael E. Drew & Timothy Whittaker, 2016. "The Predictive Performance of Asset Pricing Models: Evidence from the Australian Securities Exchange," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 19(04), pages 1-18, December.
    2. B. D. Craven & Sardar M. N. Islam, 2015. "Stock Price Modeling: Separation of Trend and Fluctuations, and Implications," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 18(04), pages 1-12, December.
    3. Ray R. Sturm, 2016. "Is There a Presidential Election Cycle in Firm Financials?," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 19(02), pages 1-18, June.

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    More about this item

    Keywords

    Fundamental value hypothesis; rational bubbles; emerging markets; markets; return behavior; JEL Classification: G14; JEL Classification: G15;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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