Market Efficiency of the Malaysian Stock Exchange: Further Evidence

Abstract

This paper investigates the weak-form of market efficiency using the Malaysian Stock Exchange over a period of January 1991 to December 2006. The long-spanning data set enabled us to study piecewise before and after the economic crisis encountered by the Malaysian stock market. Using the daily price index, the weak-form efficiency is examined according to the price, return, and volatility. The unit root test was performed for both the price level and price changes to verify the presence of random walk processes. In order to account the characteristics of emerging markets, the daily returns are adjusted for infrequent trading and non-linearity behaviour. The nonlinearities are further examined by the exponential GARCH-M to ensure that the observed return predictibility is not resulted by time-variation in the market risk premium. Besides the clustering volatility, the predictability of the long-range dependence volatility was also checked. The empirical results evidenced the mixtures of efficient and inefficient markets in the Malaysian stock exchange for the studied sub-periods.