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Sectoral efficiency of the Malaysian stock market and the impact of the Asian financial crisis

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  • Kian-Ping Lim

Abstract

Purpose - The purpose of this paper is to empirically examine the relative efficiency of eight economic sectors in the Malaysian stock market and the impact of the 1997 Asian financial crisis on the reported sectoral efficiency. Design/methodology/approach - This paper investigates the relative efficiency of stock market using the recently proposed rolling bicorrelation test statistic that is designed to detect nonlinear predictability in stock returns series. Findings - For the sample period of 1 January 1994 to 31 October 2006, the sector of tin and mining is found to be the most efficient sector, while the properties sector experiences the most persistent deviations from random walk over time. The subsequent sub-periods analysis reveals that the highest inefficiency occurs during the crisis period for all economic sectors except tin and mining. However, all these seven crisis-stricken sectors managed to stage a turnaround in the USD pegged period where capital controls were imposed by the Malaysian government. Practical implications - The Malaysian experience demonstrates that credible policy actions to calm the markets and restore investors' confidence ought to be the priority during turbulent period to avoid deterioration in the level of market efficiency. This provides useful input for market regulators. Originality/value - The occurrence of market crash or financial crisis is one possible contributing factor of market inefficiency. However, there is a lack of empirical research to formally assess the impact of financial crisis on stock market efficiency, and hence little is known about stock price behaviour during financial turmoil.

Suggested Citation

  • Kian-Ping Lim, 2008. "Sectoral efficiency of the Malaysian stock market and the impact of the Asian financial crisis," Studies in Economics and Finance, Emerald Group Publishing, vol. 25(3), pages 196-208, August.
  • Handle: RePEc:eme:sefpps:v:25:y:2008:i:3:p:196-208
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    References listed on IDEAS

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    1. Brown, Stephen J & Goetzmann, William N, 1995. " Performance Persistence," Journal of Finance, American Finance Association, vol. 50(2), pages 679-698, June.
    2. Blake, Christopher R. & Morey, Matthew R., 2000. "Morningstar Ratings and Mutual Fund Performance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 35(03), pages 451-483, September.
    3. Edwin J. Elton, 2002. "Spiders: Where Are the Bugs?," The Journal of Business, University of Chicago Press, vol. 75(3), pages 453-472, July.
    4. Elton, Edwin J & Gruber, Martin J & Blake, Christopher R, 1996. "The Persistence of Risk-Adjusted Mutual Fund Performance," The Journal of Business, University of Chicago Press, vol. 69(2), pages 133-157, April.
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    Citations

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    Cited by:

    1. Alam, Nafis & Arshad, Shaista & Rizvi, Syed Aun R., 2016. "Do Islamic stock indices perform better than conventional counterparts? An empirical investigation of sectoral efficiency," Review of Financial Economics, Elsevier, pages 108-114.
    2. Hiremath, Gourishankar S & Bandi, Kamaiah, 2010. "Some Further Evidence on the Behaviour of Stock Returns in India," MPRA Paper 48518, University Library of Munich, Germany.
    3. Gourishankar S Hiremath & Bandi Kamaiah, 2010. "Nonlinear Dependence in Stock Returns: Evidences from India," Journal of Quantitative Economics, The Indian Econometric Society, vol. 8(1), pages 69-85, January.

    More about this item

    Keywords

    Stock markets; Economic sectors; Malaysia;

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