Efficient Market Hypothesis in South Africa: Evidence from a threshold autoregressive (TAR) model
AbstractThis study deviates from the conventional use of a linear approach in testing for the efficiency market hypothesis (EMH) for the Johannesburg Stock Exchange (JSE) between the periods 2001:01 to 2013:07. By making use of a threshold autoregressive (TAR) model and corresponding asymmetric unit root tests, our study demonstrates how the stock market indexes evolve as highly persistent, nonlinear process and yet for a majority of the time series under observation, the formal unit root tests reject the hypothesis of stationarity among the variables. These results bridge two opposing contentions obtained from previous studies by concluding that while a number of stock prices under the JSE stock market may not evolve as pure unit root processes, the time series are, however, highly persistent to an extent of being able to be deemed as weak-form efficient.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 50544.
Date of creation: 10 Oct 2013
Date of revision:
Keywords: Efficient Market Hypothesis (EMH); Johannesburg stock Exchange (JSE); South Africa; Threshold Autoregressive (TAR) model; Unit Roots.;
Find related papers by JEL classification:
- C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
This paper has been announced in the following NEP Reports:
- NEP-AFR-2013-10-18 (Africa)
- NEP-ALL-2013-10-18 (All new papers)
- NEP-FMK-2013-10-18 (Financial Markets)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Simon van Norden & Huntley Schaller & ), 1995.
"Regime Switching in Stock Market Returns,"
- Shively, Philip A., 2003. "The nonlinear dynamics of stock prices," The Quarterly Review of Economics and Finance, Elsevier, vol. 43(3), pages 505-517.
- John H. Boyd & Bruce D. Smith, 1995.
"The evolution of debt and equity markets in economic development,"
542, Federal Reserve Bank of Minneapolis.
- Bruce D. Smith & John H. Boyd, 1998. "The evolution of debt and equity markets in economic development," Economic Theory, Springer, vol. 12(3), pages 519-560.
- Greenwood, J. & Smith, B.D., 1995.
"Financial Markets in Development, and the Development of Financial Markets,"
RCER Working Papers
406, University of Rochester - Center for Economic Research (RCER).
- Greenwood, Jeremy & Smith, Bruce D., 1997. "Financial markets in development, and the development of financial markets," Journal of Economic Dynamics and Control, Elsevier, vol. 21(1), pages 145-181, January.
- Pandey, Vivek & Kohers, Theodor & Kohers, Gerald, 1998. "Deterministic Nonlinearity in the Stock Returns of Major European Equity Markets and the United States," The Financial Review, Eastern Finance Association, vol. 33(1), pages 45-63, February.
- Abhyankar, A & Copeland, L S & Wong, W, 1997. "Uncovering Nonlinear Structure in Real-Time Stock-Market Indexes: The S&P 500, the DAX, the Nikkei 225, and the FTSE-100," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(1), pages 1-14, January.
- Francis X. Diebold & Lutz Kilian, 1999.
"Unit Root Tests are Useful for Selecting Forecasting Models,"
New York University, Leonard N. Stern School Finance Department Working Paper Seires
99-063, New York University, Leonard N. Stern School of Business-.
- Diebold, Francis X & Kilian, Lutz, 2000. "Unit-Root Tests Are Useful for Selecting Forecasting Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 18(3), pages 265-73, July.
- Francis X. Diebold & Lutz Kilian, 1999. "Unit Root Tests Are Useful for Selecting Forecasting Models," NBER Working Papers 6928, National Bureau of Economic Research, Inc.
- Kohers, Theodor & Pandey, Vivek & Kohers, Gerald, 1997. "Using nonlinear dynamics to test for market efficiency among the major U.S. stock exchanges," The Quarterly Review of Economics and Finance, Elsevier, vol. 37(2), pages 523-545.
- Mubariz Hasanov & Tolga Omay, 2007. "Are the Transition Stock Markets Efficient? Evidence from Non-Linear Unit Root Tests," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 7(2), pages 1-12.
- Bruce E. Hansen, 2000.
"Sample Splitting and Threshold Estimation,"
Econometric Society, vol. 68(3), pages 575-604, May.
- Keith Jefferis & Graham Smith, 2005. "The Changing Efficiency Of African Stock Markets," South African Journal of Economics, Economic Society of South Africa, vol. 73(1), pages 54-67, 03.
- Fredj Jawadi & Catherine Bruneau & Nadia Sghaier, 2009. "Nonlinear Cointegration Relationships Between Non-Life Insurance Premiums and Financial Markets," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 76(3), pages 753-783.
- Qaiser Munir & Kasim Mansur, 2009. "Is Malaysian Stock Market Efficient? Evidence from Threshold Unit Root Tests," Economics Bulletin, AccessEcon, vol. 29(2), pages 1359-1370.
- Kian‐Ping Lim & Robert Brooks, 2011. "The Evolution Of Stock Market Efficiency Over Time: A Survey Of The Empirical Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 25(1), pages 69-108, 02.
- Bruce E. Hansen & Mehmet Caner, 1997.
"Threshold Autoregressions with a Unit Root,"
Boston College Working Papers in Economics
381, Boston College Department of Economics.
- Enders, Walter & Granger, Clive W J, 1998.
"Unit-Root Tests and Asymmetric Adjustment with an Example Using the Term Structure of Interest Rates,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 16(3), pages 304-11, July.
- Enders, Walter & Granger, C. W. J., 1998. "Unit Root Tests and Asymmetric Adjustment with an Example Using the Term Structure of Interest Rates," Staff General Research Papers 1388, Iowa State University, Department of Economics.
- Azar P. Jammine & Douglas M. Hawkins, 1974. "The Behaviour of Some Share Indices: A Statistical Analysis," South African Journal of Economics, Economic Society of South Africa, vol. 42(1), pages 27-35, 03.
- Fama, Eugene F, 1991. " Efficient Capital Markets: II," Journal of Finance, American Finance Association, vol. 46(5), pages 1575-617, December.
- Guneratne Banda Wickremasinghe, 2004. "Efficiency Of Foreign Exchange Markets: A Developing Country Perspective," International Finance 0406004, EconWPA.
- Collins G. Ntim & Kwaku K. Opong & Jo Danbolt & Frank Senyo Dewotor, 2011. "Testing the weak-form efficiency in African stock markets," Managerial Finance, Emerald Group Publishing, vol. 37(3), pages 195-218, March.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.