Return predictability in African stock markets

This paper models weekly index returns adjusted for thin trading as a nonlinear autoregressive process with conditional heteroscedasticity to investigate the weak-form pricing efficiency of 11 African stock markets. Specifically, the use of the EGARCH-M model allows us to capture how conditional volatility affects the pricing process without imposing undue restrictions on the parameters of the conditional variance equation. On the basis of such a robust model, we are able to reject the evidence in prior studies that the Nigerian stock market is weak-form efficient. On the other hand, we confirm extant results that the markets in Egypt, Kenya, and Zimbabwe are efficient while that of South Africa is not weak-form efficient. We also generate new results, which point to the efficiency of the stock markets in Mauritius and Morocco, while the markets in Botswana, Ghana, Ivory Coast, and Swaziland are not consistent with weak-form efficiency.     

International Stock Market Efficiency and Integration: A Study of Eighteen Nations

This study examines the relationships among stock prices in eighteen national stock markets by using unit root and cointegration tests for the period 1961--92. All the markets were analyzed individually and collectively in regions to test for market efficiency. The results from unit root tests suggest that the world equity markets are weak-form efficient. The cointegration test results show that there are only a small number of significant cointegrating vectors over the last three decades. However, the number of significant cointegrating vectors increases after the October 1987 stock market crash, a result that is consistent with the contagion effect.     

The changing and relative efficiency of European emerging stock markets

The martingale hypothesis is tested for 15 European emerging stock markets located in Croatia, the Czech Republic, Estonia, Hungary, Iceland, Latvia, Lithuania, Malta, Poland, Romania, Russia, the Slovak Republic, Slovenia, Turkey and the Ukraine. For comparative purposes, the developed stock markets in Greece, Portugal and the UK are also included. Rolling window variance ratio tests based on returns and signs and with wild bootstrapped p-values are used with daily data over the period beginning in February 2000 and ending in December 2009. The fixed-length rolling sub-period window captures changes in efficiency and is used to identify events which coincide with departures from weak-form efficiency and to rank markets by relative efficiency. Overall, return predictability varies widely. The most efficient are the Turkish, UK, Hungarian and Polish markets; the least efficient are the Ukrainian, Maltese and Estonian stock markets. The global financial market crisis of 2007–2008 coincides with return predictability in the Croatian, Hungarian, Polish, Portuguese, Slovakian and UK stock markets. However, not all markets were affected: the crisis had little effect on weak-form efficiency in stock markets located in Greece, Latvia, Romania, Russia and Turkey.     

TESTS OF RANDOM WALK AND MARKET EFFICIENCY FOR LATIN AMERICAN EMERGING EQUITY MARKETS

Variance-ratio methodology is used to test the hypothesis that Latin American emerging equity market prices follow a random walk. The data are monthly index prices in local currency from December 1975 to March 1991 for Argentina, Brazil, Chile, and Mexico. The variance-ratio tests reject the random walk hypothesis. However, runs tests indicate that Latin American equity markets are weak-form efficient. These empirical findings suggest that domestic investors might not be able to develop trading strategies that would allow them to earn excess returns.     

Global financial crisis, extreme interdependences, and contagion effects: The role of economic structure?

The paper examines the extent of the current global crisis and the contagion effects it induces by conducting an empirical investigation of the extreme financial interdependences of some selected emerging markets with the US. Several copula functions that provide the necessary flexibility to capture the dynamic patterns of fat tail as well as linear and nonlinear interdependences are used to model the degree of cross-market linkages. Using daily return data from Brazil, Russia, India, China (BRIC) and the US, our empirical results show strong evidence of time-varying dependence between each of the BRIC markets and the US markets, but the dependency is stronger for commodity-price dependent markets than for finished-product export-oriented markets. We also observe high levels of dependence persistence for all market pairs during both bullish and bearish markets.     

Unchecked manipulations,price–volume relationship and market efficiency: Evidence from emerging markets

This paper investigates how unchecked manipulations could cause frequent trade-induced manipulations and weak-form market inefficiency in South Asian stock markets [Bombay Stock Exchange (BSE), Dhaka Stock Exchange (DSE) and Karachi Stock Exchange (KSE)]. Specifically, the paper analyses the price–volume relationship as one of the many cases of market inefficiency. By employing various econometric tests, this paper first provides conclusive evidence of market inefficiency in these markets. It then extracts evidence of manipulation periods from legal cases and analyses price–volume relationship during these periods. The paper finds that there exists market-wide trading-induced manipulations, where excessive buying and selling causes prices to inflate artificially before crashing down. The paper concludes that South-Asian markets are inefficient in the weak-form.     

An Empirical Analysis of Stock Prices in Major Asian Markets and the United States

This study uses unit root and cointegration tests to examine the relationships among the stock markets in Hong Kong, South Korea, Singapore, Taiwan, Japan, and the United States. All the stock prices are analyzed both individually and collectively to test for international market efficiency. Unit roots in stock prices are found. Pairwise and higher-order cointegration tests indicate that there is no evidence of cointegration among the stock prices. The findings suggest that the stock prices in major Asian markets and the United States are weak-form efficient individually and collectively in the long run. It also implies that international diversification among the markets is effective.     

MARKET EFFICIENCY IN DEVELOPING COUNTRIES: A CASE STUDY OF THE NAIROBI STOCK EXCHANGE

This study extends evidence on the efficiency of stock markets in developing countries using data from the Nairobi Stock Exchange (NSE), and also addresses some methodological issues which have contributed to the sparseness of similar studies. Evidence is provided that small markets such as the NSE may provide empirical results consistent with weak-form efficiency. This evidence holds for the NSE irrespective of whether bid-, ask-, or market-price series are used in conducting the study.     

Are Asian stock markets efficient? Evidence from new multiple variance ratio tests

This paper tests for the martingale hypothesis in the stock prices of a group of Asian markets. We use new multiple variance ratio tests based on the wild bootstrap and signs. These are non-parametric finite sample tests, which do not rely on large sample theories for statistical inference. This paper also presents Monte Carlo results that these non-parametric tests show superior small sample properties to those of the conventional Chow–Denning test. Both weekly and daily data from 1990 are considered, while moving sub-sample windows are used for the latter to control the sensitivity of the results to a particular sample period. It is found that the Hong Kong, Japanese, Korean and Taiwanese markets have been efficient in the weak-form. The markets of Indonesia, Malaysia and Philippines have shown no sign of market efficiency, despite financial liberalization measures implemented since the eighties. We have also found evidence that the Singaporean and Thai markets have become efficient after the Asian crisis. In general, the results point toward the notion that the pricing efficiency of a market depends on the level of equity market development as well as the regulatory framework conducive of transparent corporate governance.     

Random Walks and Market Efficiency Tests of Latin American Emerging Equity Markets: A Revisit

The few existing studies on equity price dynamics and market efficiency for Latin American emerging equity markets show conflicting results. This study uses multiple varianceratio and auto-regressive fractionally integrated moving-average tests and new data (U.S. dollar-based national equity indices for the 1987–1997 period) to clarify these results. Documented evidence shows that equity prices in major Latin American emerging equity markets — Argentina, Brazil, Chile and Mexico—follow a random walk, and that they are, generally, weak-form efficient. In sum, therefore, the evidence suggests that international investors in these markets cannot use historical information to design systematically profitable trading schemes because future long-term returns are not dependent on past returns.     

Random Walks and Market Efficiency Tests: Evidence from Emerging Equity Markets

We use the multiple variance-ratio test of Chow and Denning (1993) to examine the stochastic properties of local currency- and US dollar-based equity returns in 15 emerging capital markets. The technique is based on the Studentized Maximum Modulus distribution and provides a multiple statistical comparison of variance-ratios, with control of the joint-test's size. We find that the random walk model is consistent with the dynamics of returns in most of the emerging markets analyzed, which contrasts many random walk test results documented with the use of single variance-ratio techniques. Further, a runs test suggests that most of the emerging markets are weak-form efficient. Overall, our results suggest that investors are unlikely to make systematic nonzero profit by using past information in many of the examined markets, thus, investors should predicate their investment strategies on the assumption of random walks. Additionally, our results suggest exchange rate matters in returns' dynamics determination for some of the emerging equity markets we analyzed.     

Existence of long memory in crude oil and petroleum products: Generalised Hurst exponent approach

This study examines the presence of long-run dependence in a variety of crude and refined energy spot markets during the 1986–2018 period using the time-varying generalised Hurst exponent. Our results indicate that the weak-form efficiency in energy spot markets is clearly time-varying, with USGC(U.S. Gulf Coast Conventional Gasoline) Diesel Fuel the most efficient and Propane the least. An important finding is that after the subprime crisis, the persistence of energy spot market products has increased. Overall, our finding highlights that the time-varying model is preferable to the time-constant one since the former can capture time-varying efficiency, which heavily depends on a country’s predominant economic and political conditions.     

Internal and external spillover effects for the BRIC countries: Multivariate GARCH-in-mean approach

This paper examines mean-to-mean, volatility-to-mean and volatility-to-volatility spillover effects for the stock markets of BRIC countries. External and internal spillovers of returns and volatilities are estimated using 4-dimensional BEKK-GARCH-in-mean model. The model also includes the returns of stock markets in the USA, Germany, Japan and the MSCI Emerging market index, as well as time-return interaction terms which allow taking into account the dynamics of their influence on BRIC stock markets during pre-crisis, crisis and recovery time periods. Some evidence for the famous ‘decoupling’ phenomenon is found. The research contributes to the literature on spillover effects by using multivariate GARCH models.     

Are exchange rates serially correlated? New evidence from the Euro FX markets

This paper examines the serial uncorrelatedness hypothesis in the Euro FX markets by testing for autocorrelation in daily FX returns of 82 countries over the period of 1999–2010. We use three newly developed tests that are robust to conditional heteroskedasticity of unknown forms and that do not choose a lag parameter arbitrarily. They are Escanciano &; Lobato (2009)'s automatic Box–Pierce Q_p test, Nankervis &; Savin (2010)'s generalized Andrews–Ploberger test and Deo (2000)'s robust Durlauf test. We find no significant autocorrelation in the FX returns of around 58 to 62 countries, suggesting that majority of the Euro FX markets are weak-form efficient.     

Spreading the fear: The central role of CBOE VIX in global stock market uncertainty

Construction of efficient portfolios is reliant on understanding the correlation between assets. If correlations change markedly during times of economic turmoil then investors are exposed to greater risk at the most inopportune time. We examine the linkages between global stock markets using measures of market uncertainty (implied volatility). Using a sample of daily changes in G7 and BRIC implied volatility measures, over a 20-year sample period, we demonstrate that uncertainty in U.S. markets plays a pivotal role in global stock market uncertainty. “Fear is spread” across markets, as heightened uncertainty in U.S. markets is transmitted across global markets. Conversely, changes in global market uncertainty do not explain changes in U.S. market uncertainty. While there is a clear increase in connectedness during crisis periods, we observe a disparity in the way that inter-dependencies change during the two major economic crises in our sample period; the GFC (2007–2009) and COVID-pandemic (2020). The additional importance of US news largely drives our results during the GFC, while the effect is spread among several countries (particularly within European markets) during COVID.     

Debt structure and corporate performance in emerging markets

This paper examines the effects of public and bank debt financing on firm performance in emerging markets. Using data on 700 publicly traded firms from the BRIC countries, it is documented that bank debt may have a positive effect on firm profitability. While overall market assessment of bank debt financing is negative, it is found that fully bank-financed firms lose less of their market value. Main findings remain unchanged after addressing potential endogeneity issues by introducing a novel instrumental variable. Overall, the results suggest that higher levels of bank financing may have positive effects on firm profitability and market valuation.     

Commodity prices and BRIC and G3 liquidity: A SFAVEC approach

This paper investigates the influence of liquidity in the major developed and major developing economies on commodity prices. Liquidity is taken to be M2. A novel finding is that unanticipated increases in the BRIC countries’ liquidity is associated with significant and persistent increases in commodity prices that are much larger than the effect of unanticipated increases in G3 liquidity, and the difference increases over time. Over 1999–2012 BRIC liquidity is strongly linked with global energy prices and global real activity whereas G3 liquidity is not. The impact of BRIC liquidity on mineral and metal prices is twice as large as that of G3 liquidity. Granger casualty goes from liquidity to commodity prices. BRIC and G3 liquidity and commodity prices are cointegrated. BRIC and G3 liquidity and global output and global prices are cointegrated. We construct a structural factor-augmented error correction (SFAVEC) model.     

The Response of Bank Retail Rates to Money Market Rates in the BRIC Economies: An Application of the Disaggregated GETS Model

The purpose of this paper is to examine the interest rate transmission mechanism for the emerging BRIC economies (Brazil, Russia, India, and China). We analyze the way interbank rates are transmitted to the bank retail rates, and we test the symmetry hypothesis. A disaggregated general-to-specific model is applied for estimating interest rate pass-through and examining whether retail rates respond symmetrically or asymmetrically to upward/downward interbank rate changes. Overall, our empirics show evidence of sluggish and incomplete pass-through from market rates to bank loan and deposit rates. We show that banks' speed of upward and downward adjustment behavior is symmetric in both loan and deposit markets.     

A NOTE ON SOME ‘WEAK FORM’ TESTS OF CAPITAL MARKET EFFICIENCY IN NEW ZEALAND*

This paper reports the results of some experiments designed to test the ‘weak form’ efficiency of the New Zealand Stock Market The experiments were tests of serial correlation for various lags, and runs tests. The evidence suggests that the New Zealand market, at least as reflected in those securities tested, is essentially weak-form efficient