Behavior of Stock Market Index in the Stock Exchange of Thailand

Jiranyakul, Komain (2007): Behavior of Stock Market Index in the Stock Exchange of Thailand. Published in: NIDA Economic Review , Vol. 2, No. 2 (December 2007): pp. 47-57.

Abstract

In this paper, the variance-ratio test and the ARMA-GARCH (1,1) are used to test whether the Stock Exchange of Thailand is an efficient market. Using monthly market index during January 1987 and December 2006, the variance-ratio test shows that the market index follows a random walk process, and this is confirmed by unit root tests. The GARCH process shows that the volatility of stock market return generated by the GARCH variance series exhibits an uneven pattern. The unpredictable stock index and uneven volatility of stock return imply that the Thai stock market is efficient according to weak-form efficient market hypothesis.

• Item Type: MPRA Paper
• Language: English
• Keywords: Stock market index, Variance-ratio test, GARCH, Market efficiency
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading

References

Baillie, R. T., and Bolloslev, T., 1989, "Common stochastic trends in a system of exchange rates," Journal of Finance, 44, 167-181.

Bollerslev, T., 1986, "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, 31, 307-327.

Cajueiro, D. O., and Tabak, B. M., 2006, "Testing for preditability in equity returns for European transition markets," Economic Systems, 30, 56-78.

Campbell, J. Y., and Hentschel, L., 1992, "No news is good news: an asymmetric model of changing volatility in stock returns," Journal of Financial Economics, 31, 281-318.

Chen, N.F., Roll, R. and Ross S., 1986, "Economic forces and the stock market," Journal of Business, 59, 383-403.

Chaudhuri, K., and Wu, Y., 2004, "Mean Reversion in Stock Prices: Evidence from Emerging Markets," Managerial Finance, 30, 22-37.

Chung, S. K., and Tai, S.S., 1999, "Cointegration and causality between macroeconomic variables and stock market returns," Global Finance Journal, 10, 71-81.

Cochrane, J. H., and DeFina, R. H., 1995, "New evidence on predictability in world equity market," Journal of Business Finance and Accounting, 22, 845-854.

Debondt, W., and Thaler, R., 1985, "Does the stock market overreact?" Journal of Finance, 40, 793-805.

Dickey, D.A., and Fuller, W. A., 1979, "Distribution of the estimates for autoregressive time series with a unit root," Journal of the American Statistical Association, 74, 427-431.

Dickey, D.A., and Fuller, W. A., 1981, "Likelihood ratio statistics and autoregressive time series with a unit root," Econometrica, 49, 1057-1072

French, K. R., Schwert, G. W., and Stambaugh, R. F., 1987, "Expected stock return and volatility," Journal of Financial Economics, 19, 3-29.

Frennberg, P. and Hansson, B., 1993, "Testing the random walk hypothesis on Swedish stock prices: 1919-1990," Journal of Banking and Finance, 17, 175-191.

Glosten, L., Jagannathan, R., and Runkle, D.,1993, "On the relation between the expected value and the volatility of the nominal excess returns on stocks," Journal of Finance, 48, 1779-1801.

Kim, K., 2003, "Dollar exchange rate and stock price: evidence from multivariate cointegration and error correction model," Review of Financial Economics, 12, 301-313.

Liu, C. Y., and He, J., 1991, "A variance ratio test of random walks in foreign exchange rates," Journal of Finance, 46, 773-785.

Lo, A. W., and MacKinlay, A. C., 1988, "Stock market prices do not follow random walks: evidence from a simple specification test," Review of Financial Studies, 1, 41-66.

Lo, A. W., and MacKinlay, A. C., 1989, "The size and power of the variance ratio test in finite samples: a monte carlo investigation," Journal of Econometrics, 40, 203-238.

MacKinnon, J. G., 1990, "Critical values for cointegration tests. in Long-run economic relationships," Readings in Cointegration. edited by R. F. Engle, and C. W. J. Granger. Oxford: Oxford University Press, 267-276.

MacKinnon, J. G., 1996, "Numerical distribution functions for unit root and cointegration tests," Journal of Applied Econometrics, 11, 601-618.

Malliaris, A. G., and Urrutia, J. L.,1990, "How big is the random walks in macroeconomic time series?: variance ratio tests," Economics Letters, 34, 113-116.

McKenzie, M. D., 2002, "The economics of exchange rate volatility asymmetry," International Journal of Finance and Economics, 7, 247-260.

Phillips, P. C. B., and Perron, P., 1988, "Testing for a unit root in time series regression," Biometrika, 75, 335-467.