Testing the Assertion that Emerging Asian Stock Markets are Becoming More Efficient

Abstract

Testing the assertion that emerging stock markets are becoming more efficient over time has received increasing attention in the empirical literature in recent years. However, the statistical tests adopted in extant literature are designed to detect linear predictability, and hence disregard the possible existence of nonlinear predictability. Motivated by this concern, this study computes the bicorrelation statistics of Hinich (1996) in fixed-length moving sub-sample windows, and found that nonlinear predictability for all returns series follows an evolutionary time path. However, for most indices with the exception of Taiwan SE Weighted, there is no clear trend towards higher efficiency as predicted by the classical EMH.

Keywords: Predictability, Nonlinearity, Market Efficiency, Bicorrelations, Emerging stock markets

JEL Classification: G15, C49