A Comparison of Stock Market Efficiency of the BRIC Countries

Terence Tai-Leung Chong,Elfreda Nga-Yee Wong,Sam Ho-Sum Cheng

doi:10.4236/ti.2010.14029

Abstract

This article compares the stock market efficiency of Brazil, Russia, India and China (commonly referred to as BRIC). The profitability of trading rules associated with the Simple Moving Average (SMA), the Relative Strength Index (RSI), the Moving Average Convergence Divergence (MACD) and the Momentum (MOM) are evaluated. It is found that these indicators are most profitable in the Russian stock market. The Brazilian stock market is found to be the most efficient market among the BRIC. An explanation for such a discrepancy is provided.

Highlights

Over the past two decades, a good number of empirical studies have been conducted to evaluate the performance of different trading rules
Earlier studies focus on the appealing Variable-length Moving Average (VMA) rule, which states that a long position should be taken if the short-term VMA is above the long-term VMA, and vice versa
The highest return for each market ranges from 16.23% (Brazil) to 60.58% (Russia)

Summary

Introduction

Over the past two decades, a good number of empirical studies have been conducted to evaluate the performance of different trading rules. There is an increasing number of studies on the performance of technical trading rules in emerging markets. Martin [7] applies the moving-average rule to 12 emerging currencies and shows that the risk-adjusted return is not significant. Chong and Ip [11] demonstrate that the momentum rule is profitable in emerging currency markets. Another strand of literature focuses on emerging stock markets. Ito [12] finds profitable technical rules in the stock markets of Indonesia, Mexico and Taiwan. It is found that the trading rules associated with these indicators outperform the buy-and-hold strategy in India and Russia, while the stock market of Brazil is shown to be relatively efficient.

Data and Methodology

Results

Conclusion