Why do emerging stock markets experience more persistent price deviations from a random walk over time? A country-level analysis

Lim, Kian Ping and Brooks, Robert D. (2009) Why do emerging stock markets experience more persistent price deviations from a random walk over time? A country-level analysis. Macroeconomic Dynamics. pp. 1-39. ISSN 1365-1005 (In Press)

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Abstract

This paper employs the rolling bicorrelation test to measure the degree of nonlinear departures from a random walk for aggregate stock price indices of fifty countries over the sample period 1995-2005. We find that stock markets in economies with low per capita GDP in general experience more frequent price deviations than those in the high-income group. This clustering effect is not due to market liquidity or other structural characteristics, but instead can be explained by cross-country variation in the degree of private property rights protection. Our conjecture is that weak protection deters the participation of informed arbitrageurs, leaving those markets dominated by sentiment-prone noise traders whose correlated trading causes stock prices in emerging markets to deviate from the random walk benchmarks for persistent periods of time.

Item Type: Article
Uncontrolled Keywords: Random Walk, Degree of market efficiency, Determinants of market efficiency, Private property rights
Subjects: ?? HG4551-4598 ??
Divisions: SCHOOL > Labuan School of International Business and Finance
Depositing User: Unnamed user with email storage.bpmlib@ums.edu.my
Date Deposited: 26 Feb 2011 02:57
Last Modified: 19 Oct 2017 08:05
URI: http://eprints.ums.edu.my/id/eprint/1905

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