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Is the Mongolian Equity Market Efficient? Empirical Evidence from Tests of Weak-Form Efficiency

Journal of Money, Investment and Banking, Issue 25, pp.181-193, 2012

13 Pages Posted: 7 Sep 2012 Last revised: 8 Oct 2012

Lim Kai Jie Shawn

University College London - Department of Economics

Pavneet Chadha

University College London - Department of Economics

Lau Joshua

University College London - Department of Economics

Nishad Potdar

University College London - Department of Economics

Date Written: September 6, 2012

Abstract

This paper investigates the empirical validity of the weak-form of the Efficient Market Hypothesis in the Mongolian equity market over Jan 1999 to Jul 2012. We examine the characteristics of the market by testing the fit of returns to a normal distribution using the Jarque-Bera Test, and find strong evidence against normality. The data also exhibits positive skewness and a high level of excess kurtosis. Next, we test for the presence of autocorrelation using the Ljung-Box Q Test and the non-parametric Runs Test, and find strong evidence against the null hypothesis of no autocorrelation for both of these tests. Finally, we test the associated Random Walk Hypothesis using the Augmented Dickey-Fuller Test and the Chow-Denning Multiple Variance Ratio (MVR) Test. We reject the null hypothesis of the presence of a unit root for the Augmented Dickey-Fuller Test. In addition, we find evidence against the Random Walk Hypothesis even after adjusting for the possible presence of heteroscedasticity in the MVR Test. Since all the tests present results consistent with weak-form inefficiency, we reject the weak-form of the Efficient Market Hypothesis for the Mongolian equity market.

Keywords: Weak-form efficient market hypothesis, Mongolian equity market, Random walk hypothesis

JEL Classification: C14, G14

Suggested Citation

Kai Jie Shawn, Lim and Chadha, Pavneet and Joshua, Lau and Potdar, Nishad, Is the Mongolian Equity Market Efficient? Empirical Evidence from Tests of Weak-Form Efficiency (September 6, 2012). Journal of Money, Investment and Banking, Issue 25, pp.181-193, 2012. Available at SSRN: https://ssrn.com/abstract=2142484

Lim Kai Jie Shawn (Contact Author)

University College London - Department of Economics ( email )

Gower Street
London WC1E 6BT, WC1E 6BT
United Kingdom

Pavneet Chadha

University College London - Department of Economics ( email )

Gower Street
London WC1E 6BT, WC1E 6BT
United Kingdom

Lau Joshua

University College London - Department of Economics ( email )

Gower Street
London WC1E 6BT, WC1E 6BT
United Kingdom

Nishad Potdar

University College London - Department of Economics ( email )

Gower Street
London WC1E 6BT, WC1E 6BT
United Kingdom

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