Cross-Country Determinants of Weak-Form Stock Market Efficiency: A Preliminary Exploratory Study

84 Pages Posted: 21 Aug 2007

See all articles by Kian-Ping Lim

Kian-Ping Lim

Universiti Malaya

Robert D. Brooks

Monash University; Financial Research Network (FIRN)

Date Written: 2007


The present paper extends the short-horizon return predictability literature to explore the potential determinants of weak-form market efficiency in a sample of 50 countries over the period 1995-2005. Using the proposed rolling bicorrelation test statistic, we are able to compare the extent of weak-form market efficiency for all our sampled stock markets, and identify those country-level variables that account for the cross-country differences in the degree of efficiency. The univariate regression results indicate that the stock market is more efficient in countries that: (1) liberalize their stock market and capital account; (2) exhibit higher degree of institutional collectivism; (3) achieve better governance outcomes; (4) short selling is both allowed and commonly practiced; (5) possess higher number of security analysts; and (6) have higher real per capita GDP, higher degree of trade openness, and lower level of inflation. In the multivariate settings, we found that cross-country differences in market efficiency can be explained by quality of institutions, capital account liberalization, investor protection and macroeconomic environment.

Keywords: Weak-form Efficiency, Nonlinear Predictability, Information Incorporation, Cross-country Determinants, Stock Markets

JEL Classification: G14, G15, C49

Suggested Citation

Lim, Kian-Ping and Brooks, Robert Darren, Cross-Country Determinants of Weak-Form Stock Market Efficiency: A Preliminary Exploratory Study (2007). 20th Australasian Finance & Banking Conference 2007 Paper, Available at SSRN: or

Kian-Ping Lim (Contact Author)

Universiti Malaya ( email )

Department of Economics
Faculty of Economics and Administration
Kuala Lumpur, 50603

Robert Darren Brooks

Monash University ( email )

Wellington Road
Clayton, Victoria 3168

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane

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