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|Title:||Efficiency testing of Asian stock markets||Authors:||Tham Yein Mei, Asor Heng Miang Tse, Fong Yuen Chiang||Keywords:||DRNTU::Business::Finance::Stock exchanges||Issue Date:||1997||Abstract:||This paper tests Fama's (1970) Efficient Market Hypothesis (EMH) on price index data of six Asian stock markets - Singapore, Hong Kong, Taiwan, Malaysia, Thailand and Indonesia. For this test, we use largely the scientific non-parametric methods, developed by Sherry (1992) to analyze the information processing efficiency of nervous systems, to determine if the overall pricing processes of these six stock markets follow random walks. These markets need to show random walk efficiency, for example, before they can introduce stock options. We test for stationarity, independence and randomness of the price innovations in the respective monthly and weekly stock market price indices over the past ten years, from June 1986 to July 1996. Our test results clearly show that all six stock markets lack one or more of the required random walk attributes, in particular stationarity, and the EMH has to be rejected. However, Singapore emerges from our tests as the most efficient regional stock market. Tentatively ranked in order of stock market efficiency, we find: Singapore, Thailand, Indonesia, Malaysia, Hong Kong and Taiwan. Singapore's stock market pricing is closest to the behavior which can support stock options (including options on futures). Our tests show both Taiwan and Hong Kong to be inefficient markets, in the sense that both exhibit non-stationary and dependent price innovations, making them particularly unsuitable for stock option pricing. In Taiwan the weekly price innovations show even higher order (Markov) dependencies. Although the price innovations in Malaysia, Thailand and Indonesia are at least stationary at the weekly level, they also exhibit regular higher-order transitions and the large sustained non-random movements in both bull and bear markets, which are so characteristic for illiquid emerging markets. All six markets exhibit strong price trend behavior, which can be profitably exploited by technical analysis with first-order Markov filters (e.g., Kalman filters) in windows of more than a month.||Description:||90 p.||URI:||http://hdl.handle.net/10356/57969||Rights:||Nanyang Technological University||Fulltext Permission:||restricted||Fulltext Availability:||With Fulltext|
|Appears in Collections:||NBS Student Reports (FYP/IA/PA/PI)|
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