Efficiency market hypothesis in an emerging market: does it really hold for Malaysia?

• Main Authors: Soon, Siew-Voon, Baharumshah, Ahmad Zubaidi, Chan, Tze-Haw
• Format: Article
• Published: Penerbit Universiti Kebangsaan Malaysia 2014
• Online Access: http://psasir.upm.edu.my/id/eprint/37409/; https://www.ukm.my/jurnalpengurusan/article/efficiency-market-hypothesis-in-an-emerging-market-does-it-really-hold-for-malaysia/

This study revisits the efficient market hypothesis (EMH) with regard to the Kuala Lumpur Stock Exchange (KZSE) at the sectoral level. Based on Liu and Narayan’s (2011) GARCH-based unit-root with structural breaks test, the unit-root null is rejected for all except one sector. By contrast, models based on commonly used unit-root tests that ignore heteroskedastic and/or breaks tend to favour the EMH. We find that the half-life estimates based on the local-persistent model are short, with the majority of them taking less than six months to absorb half a shock. All in all, the indices examined are largely inconsistent with weak-form efficiency, which implies that the returns on equity portfolios are indeed predictable.