Market efficiency in the ASEAN region: evidence from multivariate and cointegration tests

Are the regional Gulf stock markets weak-form efficient as single stock markets and as a regional stock market?

“…To test the randomness of returns in the GCC stock markets, we follow similar testing techniques to those applied by Granger (1986), Fifield and Jetty (2008), Guidi and Gupta (2013), and Mobarek and Fiorante (2014). Hence, we apply a range of tests, including Augmented Dickey-Fuller (ADF), Phillips-Perron (PP), VR, MVR, Wright, Runs, and Johansen cointegration, in order to examine whether GCC stock markets are weak-form efficient as individuals or as a group.…”

“…First, a critical limitation to parametric tests including autocorrelation and VR tests is that they require time series to be normally distributed. This normality requirement implies that employing autocorrelation tests to investigate the dependency of stock prices, in the case that normality of stock prices is rejected, may constitute statistical bias to the results (Guidi and Gupta, 2013). This statistical bias may result in a high likelihood of misjudgement of the null hypothesis of random walk.…”

“…As the abovementioned empirical GCC studies employed short sampling periods, on average less than four years, some inaccuracy in their results may be expected. However, it is argued that the randomness of stock prices may not be tested by parametric and nonparametric dependency tests alone, as randomness of stock prices requires also the condition of non-stationarity (Guidi and Gupta, 2013). As randomness of stock markets requires the existence of non-stationarity amongst time series, previous GCC studies used unit root tests to examine the condition of non-stationarity among GCC stock market returns.…”

“…The investigation of the weak-form efficiency of the emerging stock markets has been extended to consider testing the collective weak-form efficiency of a group of stock markets using the application of cointegration testing (Guidi and Gupta, 2013). The existence of cointegration has implications on the efficiency of equity markets.…”

“…The study used a number of unit root, parametric, and nonparametric tests to investigate the weak-form efficiency of the ASEAN stock markets from an individual perspective. The researchers also used the Johansen cointegration test to examine the weak-form efficiency of these Asian stock markets from a collective perspective (Guidi and Gupta, 2013). The study showed that Indonesia, Malaysia, the Philippines and Vietnam are not weak-form efficient, whereas the Singapore and Thailand stock markets are weak-form efficient individually.…”