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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Official URL: http://dx.doi.org/10.1017/S1365100509090397

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
ID Code:1905
Deposited By:IR Admin
Deposited On:26 Feb 2011 10:57
Last Modified:24 Feb 2015 10:07

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