THE EFFICIENT MARKET HYPOTHESIS REVISITED: EVIDENCE FROM THE FIVE SMALL OPEN ASEAN STOCK MARKETS

2012 ◽  
Vol 57 (03) ◽  
pp. 1250021 ◽  
Author(s):  
QAISER MUNIR ◽  
KOK SOOK CHING ◽  
FUMITAKA FUROUKA ◽  
KASIM MANSUR
Keyword(s):  
Stock Returns ◽  
Unit Root ◽  
Stock Prices ◽  
Stock Price ◽  
Efficient Market Hypothesis ◽  
Linear Series ◽  
Efficient Market ◽  
Threshold Autoregressive ◽  
Non Linear ◽  
Unit Root Process

The efficient market hypothesis (EMH), which suggests that returns of a stock market are unpredictable from historical price changes, is satisfied when stock prices are characterized by a random walk (unit root) process. A finding of unit root implies that stock returns cannot be predicted. This paper investigates the stock prices behavior of five ASEAN (Association of Southeast Asian Nations) countries i.e., Indonesia, Malaysia, Philippines, Singapore and Thailand, for the period from 1990:1 to 2009:1 using a two-regime threshold autoregressive (TAR) approach which allows testing nonlinearity and non-stationarity simultaneously. Among the main findings, our results indicate that stock prices of Malaysia and Thailand are a non-linear series and are characterized by a unit root process, consistent with the EMH. Furthermore, we find that stock prices of Indonesia, Philippines and Singapore follow a non-linear series, however, stock price indices are stationary processes that are inconsistent with the EMH.

TESTING FOR THE EFFICIENT MARKET HYPOTHESIS IN STOCK PRICES: INTERNATIONAL EVIDENCE FROM NONLINEAR HETEROGENEOUS PANELS

2013 ◽  
Vol 18 (4) ◽  
pp. 943-958 ◽  
Author(s):  
Chien-Chiang Lee ◽  
Ching-Chuan Tsong ◽  
Cheng-Feng Lee
Keyword(s):  
Unit Root ◽  
Stock Prices ◽  
Stock Price ◽  
Unit Root Test ◽  
Efficient Market Hypothesis ◽  
Global Scale ◽  
Order Zero ◽  
Efficient Market ◽  
Modeling And Forecasting ◽  
International Data

Using international data, this paper explores whether the efficient market hypothesis for real stock prices is supported for different panels. The stationarity of a real stock price has important implications for modeling and forecasting financial activities. On a global scale, we implement the recently developed nonlinear heterogeneous panel unit root test, which allows us to account for possible nonlinearity and cross-section dependence and to identify how many and which countries of the panel contain a unit root. The primary conclusion is that the stationarity of real stock prices varies between regions and levels of economic development. Overall, our empirical results illustrate that real stock prices in these countries are a mixture of stationary (integrated of order zero) and nonstationary (integrated of order one) processes.

An Empirical Study on Efficient Market Hypothesis with reference to FMCG Sector

GIS Business ◽  
2020 ◽  
Vol 15 (1) ◽  
pp. 109-126
Author(s):  
Nitin Tanted ◽  
Prashant Mistry
Keyword(s):  
Stock Prices ◽  
Stock Price ◽  
Abnormal Returns ◽  
Weak Form ◽  
Efficient Market Hypothesis ◽  
Controversial Issues ◽  
Efficient Market ◽  
Price Movements ◽  
Run Test ◽  
Stock Price Movements

One of the highly controversial issues in the area of finance is “Efficient Market Hypothesis”. Efficient Market Hypothesis states that, “In an efficient market, all available price information is reflected in the stock prices and it is not possible to generate abnormal returns compared to other investors.” A lot of studies conducted previouslyto test the Efficient Market Hypothesis, confirmed the theory until recent years, when some academicians found it to be non-applicable in financial markets. According to them, it is possible to forecast the stock price movements using Technical Analysis. The results of various studies have been inconclusive and indefinite about the issue. This study attempted to test the efficiency of FMCG Sector stocks in India in its weak form. For the study, closing prices of top 10 stocks from Nifty FMCG index has been taken for the 5-year period ranging from 1st October 2014 to 30th September 2019. Wald-Wolfowitz Run test has been used to test the haphazard movements in the stock price movements. The results indicated that FMCG sector stocks does support the Efficient Market Hypothesis and exhibit efficiency in its weak form. Hence, it is not possible to accurately predict the price movements of these stocks.

scholarly journals Testing Semi-strong Form Efficiency of Stock Market

2001 ◽  
Vol 40 (4II) ◽  
pp. 651-674 ◽  
Author(s):  
Salman Syed Ali ◽  
Khalid Mustafa
Keyword(s):  
Stock Returns ◽  
Stock Prices ◽  
Stock Markets ◽  
Efficient Market Hypothesis ◽  
Seasonal Effects ◽  
Efficient Market ◽  
New Information ◽  
Empirical Regularities ◽  
Day Of The Week ◽  
Stock Traders

The efficient market hypothesis suggests that stock markets are “informationally efficient”. That is, any new information relevant to the market is spontaneously reflected in the stock prices. A consequence of this hypothesis is that past prices cannot have any predictive power for future prices once the current prices have been used as an explanatory variable. In other words the change in future prices depends only on arrival of new information that was unpredictable today hence it is based on surprise information. Another consequence of this hypothesis is that arbitrage opportunities are wiped out instantaneously. Empirical tests of the efficient market hypothesis actually test for these consequences in various ways. Some of them have been summarised in earlier chapters. These tests generally could not conclusively accept the random-walk hypothesis of stock returns even when GARCH effects were accounted for. Many studies have found empirical regularities that are contrary to the efficient market hypothesis. For example, the monthly, weekly and daily returns on stocks tend to exhibit discernable patterns, such as seasonal affects, month of the year affect, day of the week affect, hourly affect etc. In case of Pakistan’s stock markets too such affects are identified. Such as the Ramadan affect [see Hussain and Uppal (1999)], seasonal effects and day of the week affect. Further, the wide spread use of “technical analysis” among stock traders and their ability to predict to some extent the direction of movements in the prices of individual stocks over medium term testifies to the existence of patterns and seasonal trends.

scholarly journals Idiosyncratic volatility and nominal stock prices: evidence from approximate factor structures

2017 ◽  
Vol 1 (1) ◽  
pp. 30-45
Author(s):  
Patrick ROGER ◽  
Tristan ROGER ◽  
Alain SCHATT
Keyword(s):  
Stock Returns ◽  
Stock Prices ◽  
Stock Price ◽  
Common Factors ◽  
Efficient Market Hypothesis ◽  
Idiosyncratic Volatility ◽  
Price Effect ◽  
Firm Effect ◽  
Over Time ◽  
Firm Characteristic

Approximate factor structures defined by Chamberlain and Rotschild (1983) allow to test whether a given quantitative firm characteristic (the nominal stock price in this paper) is a determinant of the idiosyncratic volatility of stock returns. Our study of 8,000 U.S stocks over the period 1980-2014 shows that small price stocks exhibit a higher idiosyncratic volatility than large price stocks. This relationship is persistent over time and robust to variations in the number of common factors of the approximate factor structure. Moreover, this small price effect does not hide a small-firm effect because it is still valid when we analyze the tercile of large firms. Our result confirms that small price stocks have lottery-type characteristics and, therefore, it is not in line with the efficient market hypothesis.

scholarly journals Stock Prices’ Variability around Earnings Announcement Dates at Karachi Stock Exchange

2012 ◽  
Vol 2012 ◽  
pp. 1-6
Author(s):  
Muhammad Azeem Qureshi ◽  
Ali Abdullah ◽  
Muhammad Imdadullah
Keyword(s):  
Stock Returns ◽  
Stock Prices ◽  
Stock Exchange ◽  
Efficient Market Hypothesis ◽  
Efficient Market ◽  
Earnings Announcement ◽  
Abnormal Stock Returns ◽  
The Impact

The purpose of this study is to investigate how earnings announcement event affects stock returns at Karachi Stock Exchange (KSE). For this purpose we use the KSE-100 Index as our sample. We use the CAR Analysis to analyze the impact of earnings announcement over the stock returns around announcement dates. Our results suggest that KSE experiences abnormal stock returns around earnings announcement dates for the overall market and for different categories which indicate that efficient market hypothesis does not hold in Pakistani market and point out the presence of informational dissemination inefficiencies in the market.

scholarly journals The Efficient Market Hypothesis and Its Critics

2003 ◽  
Vol 17 (1) ◽  
pp. 59-82 ◽  
Author(s):  
Burton G Malkiel
Keyword(s):  
Stock Returns ◽  
Stock Markets ◽  
Stock Price ◽  
Efficient Market Hypothesis ◽  
Considerable Extent ◽  
Market Revolution ◽  
Price Determination ◽  
Efficient Market ◽  
The Relationship

Revolutions often spawn counterrevolutions and the efficient market hypothesis in finance is no exception. The intellectual dominance of the efficient-market revolution has more been challenged by economists who stress psychological and behavorial elements of stock-price determination and by econometricians who argue that stock returns are, to a considerable extent, predictable. This survey examines the attacks on the efficient market hypothesis and the relationship between predictability and efficiency. I conclude that our stock markets are more efficient and less predictable than many recent academic papers would have us believe.

scholarly journals The Stock Investment Strategy at Company Acquisition

2014 ◽  
Vol 2 (3) ◽  
pp. 24-32
Author(s):  
Yu Wei Lan ◽  
Dan Lin ◽  
Lu Lin
Keyword(s):  
Stock Prices ◽  
Stock Price ◽  
Abnormal Returns ◽  
Mean Reversion ◽  
Efficient Market Hypothesis ◽  
Investment Strategy ◽  
Event Studies ◽  
Security Market ◽  
Efficient Market ◽  
Market Values

Recent studies in Accounting, Industrial Organizations and Finance often incorporate efficient market hypothesis in event studies. Event studies can be used to examine how changes in company environment affect corporate finance. However, using short-term stock prices to examine mean reversion may face a problem. Specifically, there is no evidence that changes in market values are unbiased estimates of changes in fundamentals. This study adopts program trading to test the mean reversion of an acquisition event (SPIL and ASE Group) between 2015 and 2016 in Taiwan. The results show that investors can use RSI spread and stock price deviation to make abnormal returns. In other words, investors can make profits based on technical analyses. Therefore, the evidence suggests that between 2015 and 2016, the security market in Taiwan did not fully meet the condition of a semi-strong form efficient market.

Are stock prices stationary? Some new evidence from a panel data approach

2014 ◽  
Vol 31 (4) ◽  
pp. 387-405
Author(s):  
Xin Shen ◽  
Mark J. Holmes
Keyword(s):  
Panel Data ◽  
Unit Root ◽  
Stock Prices ◽  
Stock Price ◽  
Panel Data Analysis ◽  
Seemingly Unrelated Regression ◽  
Unit Root Tests ◽  
Cross Sectional ◽  
Content Type ◽  
Non Linear

Purpose – This paper investigates whether mean reversion holds for a panel of 16 OECD stock price indices for the period 1970 to 2011. Design/methodology/approach – We employ seemingly unrelated regression (SUR)-based linear and non-linear unit root tests which are not only able to exploit the power of panel data analysis but also account for cross sectional dependencies as well as identify which panel members are stationary. Findings – In contrast to a literature that offers mixed findings on stationarity, it was found that most of our sample is characterized as mean- or trend-reverting with approximated half-lives in the region of three to five years. Originality/value – In contrast to other panel unit root tests of stock prices, the authors identify which individual panel members are stationary and non-stationary using a SURADF test. A further novelty of our approach is that we also develop a SUR-based panel KSS test that allows us to explore the possibility that stock prices exhibit non-linear stationarity.

scholarly journals Memory Effects on Saudi Arabian Stock Market – Empirical Evidence

2009 ◽  
Vol 1 (2) ◽  
Author(s):  
Khalid ALKHATHLAN ◽  
Sella PRABAKARAN
Keyword(s):  
Stock Market ◽  
Stock Prices ◽  
Linear Models ◽  
Statistical Tests ◽  
Saudi Arabian ◽  
Efficient Market Hypothesis ◽  
Memory Effects ◽  
Efficient Market ◽  
Non Linear ◽  
Portfolio Managers

This paper makes a serious endeavor to investigate whether there exists a need to study the use of non-linear models to test the survival of memory effects in a developing stock market like Saudi Arabia, performing thereon the various statistical tests for the normality of data. It also discussing how various authors are challenging the efficient market hypothesis. This has led to the use of non-linear dynamic systems for modeling movement in stock prices. In order to confirm whether the efficient market hypothesis is applicable to the Saudi Arabian Stock Market, the study has used the TADAWUL returns for the last two decade and tested them for normality. And also find out the various features of the logarithmic return spectrum of the Saudi Arabian stock markets. It also scrutinizes the possible existence of dependencies and memory effects in the return processes. In particular, it performs Rescaled Range (R/S) analysis. The results throw up several intriguing issues of relevance to portfolio managers, stock market players and analysts and academicians. Key Words: EMH, Chaos, Brownian Motion, R/S method, TASI     

scholarly journals Stock Market Reaction to COVID-19: Evidence in Customer Goods Sector with the Implication for Open Innovation

2020 ◽  
Vol 6 (4) ◽  
pp. 99
Author(s):  
Zaky Machmuddah ◽  
St. Dwiarso Utomo ◽  
Entot Suhartono ◽  
Shujahat Ali ◽  
Wajahat Ali Ghulam
Keyword(s):  
Stock Prices ◽  
Stock Price ◽  
Practical Implication ◽  
Efficient Market Hypothesis ◽  
Future Research ◽  
Observation Data ◽  
Economic Sectors ◽  
Significant Difference ◽  
Before And After ◽  
Long Term Impact

The coronavirus pandemic has spread all over the world, affecting both the health and economic sectors. The aim of this research was to observe stock prices of customer goods before and after the COVID-19 pandemic using event study and the comparison test. The sample included data of daily closing stock prices and volume of stock trade during the three months before (−90 days) and after (+90 days) the occurrence of the COVID-19 pandemic ongoing, totaling 2670 observation data both before and after the COVID-19 pandemic, for a total of 5340. The research findings indicate a significant difference between the daily closing stock price and volume of stock trade before and after the COVID-19 pandemic. The current research has both theoretical and practical implications: the findings strengthen the efficient market hypothesis, which states that the more complete the provided information, the more efficient the market. The practical implication is that investors should be careful when choosing to invest. Investors should choose customer goods sector companies that provide products that are much needed by customers, for example, pharmacy, food, beverages, etc. Future research is needed to investigate the long-term impact of the pandemic on the economy.

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