Testing the Weak-form Efficiency of Stock Markets: A Comparative Study of Emerging and Industrialised Economies

Jacinta Nwachukwu, Shitta Omowunmi

Research output: Contribution to journalArticle

Abstract

Purpose
– The purpose of this paper is to focus on the weak-form efficiency of 24 emerging and nine industrial stock market indices around the world. It tests for the predictability and the presence of seasonal patterns in rates of return from January 2000 to December 2010.

Design/methodology/approach
– It reports on the descriptive statistics for estimated monthly percentage returns. This is complemented by the use of both parametric and non-parametric techniques to test for abnormal return behaviour in stock markets.

Findings
– The results show that: first, emerging economies which persisted with market-oriented reforms had higher returns relative to risk, indicating their attractiveness for risk diversification; second, successive changes in stock prices were interrelated with each other and therefore contained information for predicting future prices in two-thirds of the emerging markets compared to one-third of industrial economies; and third, the turn-of-the calendar year effect was present for half of the emerging markets vis-à-vis one-quarter of the developed countries. The authors found limited support for the tax-loss selling hypothesis for both the emerging and industrial economies.

Research limitations/implications
– The paper fails to specifically analyse the implications for security returns of changes in technology, institutions, volume of trading and regulations in the different stock markets.

Practical implications
– The results should be particularly informative for foreign investors with regard to the risk diversification benefits of the various emerging and industrialised stock markets and the expected risk-return trade-offs.

Originality/value
– The paper provides a more powerful explanation for the role of institutional arrangements, infrastructure, culture and other country-specific risk factors in asset pricing compared to disparate case studies.
Original languageEnglish
Pages (from-to)409
Number of pages426
JournalInternational Journal of Emerging Markets
Publication statusPublished - 2015

Fingerprint

Weak-form efficiency
Testing
Comparative study
Stock market
Emerging markets
Risk diversification
Emerging economies
Foreign investors
Design methodology
Statistics
Attractiveness
Trade-offs
Security returns
Stock prices
Asset pricing
Stock market index
Risk-return
Calendar
Developed countries
Diversification benefits

Keywords

  • Efficient Market hypothosis
  • Technical tradings
  • January effects
  • Emerging Markets

Cite this

Testing the Weak-form Efficiency of Stock Markets: A Comparative Study of Emerging and Industrialised Economies. / Nwachukwu, Jacinta; Omowunmi, Shitta.

In: International Journal of Emerging Markets, 2015, p. 409.

Research output: Contribution to journalArticle

@article{c05db0c1e0354c8e9f19d388327e8e64,
title = "Testing the Weak-form Efficiency of Stock Markets: A Comparative Study of Emerging and Industrialised Economies",
abstract = "Purpose– The purpose of this paper is to focus on the weak-form efficiency of 24 emerging and nine industrial stock market indices around the world. It tests for the predictability and the presence of seasonal patterns in rates of return from January 2000 to December 2010.Design/methodology/approach– It reports on the descriptive statistics for estimated monthly percentage returns. This is complemented by the use of both parametric and non-parametric techniques to test for abnormal return behaviour in stock markets.Findings– The results show that: first, emerging economies which persisted with market-oriented reforms had higher returns relative to risk, indicating their attractiveness for risk diversification; second, successive changes in stock prices were interrelated with each other and therefore contained information for predicting future prices in two-thirds of the emerging markets compared to one-third of industrial economies; and third, the turn-of-the calendar year effect was present for half of the emerging markets vis-{\`a}-vis one-quarter of the developed countries. The authors found limited support for the tax-loss selling hypothesis for both the emerging and industrial economies.Research limitations/implications– The paper fails to specifically analyse the implications for security returns of changes in technology, institutions, volume of trading and regulations in the different stock markets.Practical implications– The results should be particularly informative for foreign investors with regard to the risk diversification benefits of the various emerging and industrialised stock markets and the expected risk-return trade-offs.Originality/value– The paper provides a more powerful explanation for the role of institutional arrangements, infrastructure, culture and other country-specific risk factors in asset pricing compared to disparate case studies.",
keywords = "Efficient Market hypothosis, Technical tradings, January effects, Emerging Markets",
author = "Jacinta Nwachukwu and Shitta Omowunmi",
year = "2015",
language = "English",
pages = "409",
journal = "International Journal of Emerging Markets",
issn = "1746-8809",
publisher = "Emerald",

}

TY - JOUR

T1 - Testing the Weak-form Efficiency of Stock Markets: A Comparative Study of Emerging and Industrialised Economies

AU - Nwachukwu, Jacinta

AU - Omowunmi, Shitta

PY - 2015

Y1 - 2015

N2 - Purpose– The purpose of this paper is to focus on the weak-form efficiency of 24 emerging and nine industrial stock market indices around the world. It tests for the predictability and the presence of seasonal patterns in rates of return from January 2000 to December 2010.Design/methodology/approach– It reports on the descriptive statistics for estimated monthly percentage returns. This is complemented by the use of both parametric and non-parametric techniques to test for abnormal return behaviour in stock markets.Findings– The results show that: first, emerging economies which persisted with market-oriented reforms had higher returns relative to risk, indicating their attractiveness for risk diversification; second, successive changes in stock prices were interrelated with each other and therefore contained information for predicting future prices in two-thirds of the emerging markets compared to one-third of industrial economies; and third, the turn-of-the calendar year effect was present for half of the emerging markets vis-à-vis one-quarter of the developed countries. The authors found limited support for the tax-loss selling hypothesis for both the emerging and industrial economies.Research limitations/implications– The paper fails to specifically analyse the implications for security returns of changes in technology, institutions, volume of trading and regulations in the different stock markets.Practical implications– The results should be particularly informative for foreign investors with regard to the risk diversification benefits of the various emerging and industrialised stock markets and the expected risk-return trade-offs.Originality/value– The paper provides a more powerful explanation for the role of institutional arrangements, infrastructure, culture and other country-specific risk factors in asset pricing compared to disparate case studies.

AB - Purpose– The purpose of this paper is to focus on the weak-form efficiency of 24 emerging and nine industrial stock market indices around the world. It tests for the predictability and the presence of seasonal patterns in rates of return from January 2000 to December 2010.Design/methodology/approach– It reports on the descriptive statistics for estimated monthly percentage returns. This is complemented by the use of both parametric and non-parametric techniques to test for abnormal return behaviour in stock markets.Findings– The results show that: first, emerging economies which persisted with market-oriented reforms had higher returns relative to risk, indicating their attractiveness for risk diversification; second, successive changes in stock prices were interrelated with each other and therefore contained information for predicting future prices in two-thirds of the emerging markets compared to one-third of industrial economies; and third, the turn-of-the calendar year effect was present for half of the emerging markets vis-à-vis one-quarter of the developed countries. The authors found limited support for the tax-loss selling hypothesis for both the emerging and industrial economies.Research limitations/implications– The paper fails to specifically analyse the implications for security returns of changes in technology, institutions, volume of trading and regulations in the different stock markets.Practical implications– The results should be particularly informative for foreign investors with regard to the risk diversification benefits of the various emerging and industrialised stock markets and the expected risk-return trade-offs.Originality/value– The paper provides a more powerful explanation for the role of institutional arrangements, infrastructure, culture and other country-specific risk factors in asset pricing compared to disparate case studies.

KW - Efficient Market hypothosis

KW - Technical tradings

KW - January effects

KW - Emerging Markets

M3 - Article

SP - 409

JO - International Journal of Emerging Markets

JF - International Journal of Emerging Markets

SN - 1746-8809

ER -