Financial Liberalization and Stock Price Behaviour in Asian Emerging Markets
This paper exhibits tests of the random walk hypothesis and market efficiency for seven Asian emerging markets as a result of the influence of financial market integration. Random walk properties of equity prices influence the return dynamic and determine the trade strategies of investors. To examine the stochastic properties of local index returns and to test the hypothesis that stock market prices follow a random walk, the single variance ratio tests of Lo and MacKinlay, as well as the multiple variance ratio test of Chow and Denning are employed. The multiple statistical comparison of variance ratios is based on the Studentized Maximum Modulus distribution with control of the joint-test’s size. The weak-form market efficiency is also tested directly, using a nonparametric runs test. These tests are particularly useful for investigating stock prices the returns of which are frequently not distributed normally. Documented evidence shows that, from the perspective of local investors, weekly stock prices in major Asian emerging markets do not follow a random walk in the pre-liberalization period. However, in the post-liberalization period the weak-form efficiency hypothesis is generally adopted at the 5% level except for the smaller stock markets of Indonesia and Thailand. These empirical findings suggest that financial integration affects the return predictability in such a way that domestic investors might not be able to develop trading strategies allowing them to earn abnormal returns. Copyright Springer 2005
Volume (Year): 38 (2005)
Issue (Month): 1 (03)
|Contact details of provider:|| Web page: http://www.springer.com|
|Order Information:||Web: http://www.springer.com/economics/development/journal/10644/PS2|
When requesting a correction, please mention this item's handle: RePEc:kap:ecopln:v:38:y:2005:i:1:p:37-62. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)or (Rebekah McClure)
If references are entirely missing, you can add them using this form.