Efficiency Market Hypothesis in an Emerging Market: Does It Really Hold for Malaysia?

Siew-Voon Soon, Ahmad Zubaidi Baharumshah, Tze-Haw Chan

Abstract


ABSTRACT

This study revisits the efficient market hypothesis (EMH) with regard to the Kuala Lumpur Stock Exchange (KLSE) at the sectoral level. Based on Liu and Narayan’s (2011) GARCH-based unit-root with structural breaks test, the unit-root null is rejected for all except one sector. By contrast, models based on commonly used unit-root tests that ignore heteroskedastic and/or breaks tend to favour the EMH. We find that the half-life estimates based on the local-persistent model are short, with the majority of them taking less than six months to absorb half a shock. All in all, the indices examined are largely inconsistent with weak-form efficiency, which implies that the returns on equity portfolios are indeed predictable.

Keywords: Stock prices; unit-root; half-life; structural breaks

ABSTRAK

Kajian ini mengkaji semula hipotesis pasaran cekap (EMH) berkaitan dengan Bursa Saham Kuala Lumpur (BSKL) di peringkat sektor. Berdasarkan ujian kepegunan Liu dan Narayan’s (2011) berasaskan GARCH dengan selaan struktur, nol kepegunan ditolak untuk semua kecuali satu sektor. Sebaliknya, model berdasarkan ujian kepegunan yang biasa digunakan yang mengabaikan heteroskedastik dan/atau selaan struktur cenderung untuk memihak kepada EMH. Kita dapati bahawa anggaran separuh hayat berdasarkan model “local-persistent” adalah pendek, dengan majoriti daripada mereka yang mengambil kurang daripada enam bulan untuk menyerap separuh kejutan. Kesimpulannya, indeks yang dikaji sebahagian besarnya tidak konsisten dengan kecekapan lemah, yang dapat membayangkan bahawa pulangan ke atas portfolio ekuiti memang boleh diramalkan.


Kata kunci: Harga saham; kepegunan; separuh hayat; selaan struktur


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