Abstract
A stock market is considered to be efficient if it accurately reflects all the relevant information in determining security prices. In international stock markets, if the assets with identical risks offer similar level of expected returns, then markets are said to be integrated. This paper investigates the stock market efficiency and integration of eight selected economies in the Asia-Pacific region. The sample is composed of 4 Emerging/ Developing (Sri Lanka, China, Malaysia and Pakistan) and 4 Developed (Australia, Hong Kong, Japan and Singapore) markets. The motivation of this paper is two-fold. The first objective is to investigate whether the selected stock markets are efficient at individual level, while the second is to examine whether international diversification is effective. The results revealed that there is no evidence against the efficiency of Japan's stock market while markets of Sri Lanka, Pakistan and Australia are proved to be inefficient. For China, Malaysia, Hong Kong and Singapore, the tests gave inconclusive results with regard to market efficiency. The cointegration analysis confirmed that there are no long-run co-movements between the stock prices, and thus international diversification within economies in the sample is effective. DOI: 10.4038/ss.v38i1.1223 <em>Staff Studies </em>Volume 38 Numbers 1& 2 2008 p.95-117
Highlights
The equity market of a country plays a prominent role in its economic development
This paper investigates the stock market efficiency and integration of the eight selected economies in the Asia-Pacific region
The first motivation of the study is to investigate whether the selected stock markets are efficient at individual level, while the second is to examine whether international diversification is effective
Summary
The equity market of a country plays a prominent role in its economic development. It encourages savings and investments in the economy, and enhances corporate governance and social responsibility. Random walks in stock returns are crucial to the formulation of rational expectation models and testing of the weak form market efficiency (where the current price is assumed to reflect all information included in the past prices). If stock returns are predictable, there will be distortions in the pricing of capital and risk, which will curtail the economic development of the country (Worthington and Higgs, 2003)
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
