Lim Kai Jie, Shawn and Chadha, Pavneet and Lau, Joshua and Potdar, Nishad (2012): Is the Mongolian Equity Market Efficient? Empirical Evidence from Tests of Weak-Form Efficiency. Published in: Journal of Money, Investment and Banking No. 25 (September 2012): pp. 181-193.
Download (293kB) | Preview
This paper investigates the empirical validity of the weak-form of the Efficient Market Hypothesis in the Mongolian equity market over Jan 1999 to Jul 2012. We examine the characteristics of the market by testing the fit of returns to a normal distribution using the Jarque-Bera Test, and find strong evidence against normality. The data also exhibits positive skewness and a high level of excess kurtosis. Next, we test for the presence of autocorrelation using the Ljung-Box Q Test and the non-parametric Runs Test, and find strong evidence against the null hypothesis of no autocorrelation for both of these tests. Finally, we test the associated Random Walk Hypothesis using the Augmented Dickey- Fuller Test and the Chow-Denning Multiple Variance Ratio (MVR) Test. We reject the null hypothesis of the presence of a unit root for the Augmented Dickey-Fuller Test. In addition, we find evidence against the Random Walk Hypothesis even after adjusting for the possible presence of heteroscedasticity in the MVR Test. Since all the tests present results consistent with weak-form inefficiency, we reject the weak-form of the Efficient Market Hypothesis for the Mongolian equity market.
|Item Type:||MPRA Paper|
|Original Title:||Is the Mongolian Equity Market Efficient? Empirical Evidence from Tests of Weak-Form Efficiency|
|Keywords:||Weak-form efficient market hypothesis; Mongolian equity market; Random walk hypothesis|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency; Event Studies
G - Financial Economics > G1 - General Financial Markets
|Depositing User:||Nishad Potdar|
|Date Deposited:||09. Oct 2012 10:33|
|Last Modified:||12. Feb 2013 15:31|
 Abraham, A., Seyyed, F.J. and Alsakran, S.A., 2002. “Testing the Random Walk Behavior and Efficiency of Gulf Stock Markets”, The Financial Review, Vol. 37, pp. 52-71
 Aga, M. and Kocaman, B., 2011. “Efficient Market Hypothesis and Emerging Capital Markets: Empirical evidence from Istanbul Stock Exchange”, Journal of Financial Markets Research Issue 3
 Borges, M.R., 2008. “ Efficient Market Hypothesis in European Stock Markets”, Working paper no.20 (School of Economics and Management, Technical University of Lisbon)
 Chow, K.V. and Denning, K.C., 1993. "A Simple Multiple Variance Ratio Test", Journal of Econometrics, Issue 58, pp. 385-401. North-Holland
 Dahel, R. and Laabas, B., 1999. “The Behavior of Stock Prices in the GCC Markets”, Working Paper 9917, Economic Research Forum
 Dickey, D.A. and Fuller, W.A., 1979. "Distribution of the Estimators for Autoregressive Time Series With a Unit Root", Journal of the American Statistical Association, Vol. 74, No. 366 , pp. 427-431
 Dickey, D.A. and Fuller, W.A, 1981. "Likelihood Ratio statistics for Autoregressive Time Series With a Unit Root", Econometrica, Vol. 49, No.4
 Dyckman, T.R. and Morse, D., 1986. "Efficient Capital Markets and Accounting: A Critical Analysis", Prentice-Hall
 Errunza, V.R. and Losq, E. 1985. "The Behavior of Stock Prices on LDC Markets", Journal of Banking and Finance, Issue 9, pp. 561-575. North-Holland
 Fama, E.F., 1965. "The Behavior of Stock-Market Prices", Journal of Business, Vol. 38, Issue 1, pp. 34-105
 Fama, E.F., 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work", Journal of Finance, Volume 25, Issue 2, pp. 383-417.
 Fama, E.F., 1991. "Efficient Capital Markets: II", The Journal of Finance, Vol. 46, No. 5, pp. 1575-1617
 Geary, R.C., 1970, "Relative Efficiency of Count of Sign Changes for Assessing Residuals Autoregression in Least Squares Regression", Biometrika, Vol. 57, pp. 123-127.
 Gersdorff, N.V. and Bacon, F., 2009, “U.S. Mergers and Acquisitions: A Test of Market Efficiency”, Journal of Finance and Accountancy.
 Gonzalo, J. and Lee, T.H., 1996. “Relative power of t type tests for stationary and unit root processes”, Journal of Time Series Analysis 17, pp. 37-47
 Granger, C., and Newbold, P., 1991. “Nonlinear Transformations of Integrated Time Series”, Journal of Time Series Analysis 12, pp 207-224
 Hadi, M.M., 2011. “Review of Capital Market Efficiency: Some Evidence from Jordianian Market”, Journal of Financial Markets Research Issue 3
 Hakkio, C.S., 1986. “Does the Exchange Rate follow a Random Walk? A Monte Carlo Study of four tests for a Random Walk”, Journal of International Money and Finance 5, pp. 221-229
 Hamid, K., Suleman, M.T., Shah, S.Z.A. and Akash, R.S.I., 2010. “Testing the Weak form of Efficient Market; Hypothesis: Empirical Evidence from Asia-Pacific Markets”, Journal of Financial Markets Research Issue 3
 Huang, B.N., 1995. "Do Asian Stock Market Prices Follow Random Walks? Evidence From the Variance Ratio Test", Applied Financial Economics, 5:4, pp. 251-256
 Iulia, S., 2009. “Testing the Efficient Market Hypothesis: A Behaviorial Approach to the current Economic Crisis”, Working Paper (University of California Berkley)
 Larcker, D.F., Gordon, L.A. and Pinches, G.E., 1980. "Testing for Market Efficiency: A Comparison of the Cumulative Average Residual Methodology and Intervention Analysis", Journal of Financial and Quantitative Analysis, Volume XV, No. 2
 Latham M., 1985. "Defining Capital Market Efficiency", Working paper no. 150 (Research Program in Finance, Institute of Business and Economic Research, University of California, Berkeley)