The Evolving and Relative Efficiencies of Stock Markets: Empirical Evidence from Rolling Bicorrelation Test Statistics

59 Pages Posted: 19 Sep 2006

See all articles by Kian-Ping Lim

Kian-Ping Lim

Universiti Malaya

Robert D. Brooks

Monash University; Financial Research Network (FIRN)

Date Written: June 2006

Abstract

The present paper utilizes the portmanteau bicorrelation test statistic of Hinich (1996) in a rolling sample approach to capture the evolution of market efficiency over time. The proposed framework also allows us to compare the relative efficiency of stock markets based on those rolling bicorrelation statistics. Using all the country indices constructed by MSCI that covered both developed and emerging stock markets, the results reveal that the degree of market efficiency varies through time in a cyclical fashion over time. These statistical features are in line with the Adaptive Markets Hypothesis of Lo (2004, 2005, 2006). On the other hand, though developed stock markets are found to be more efficient than emerging markets, there are exceptional cases that suggest market efficiency is not solely determined by the stage of stock market development. Implications of the findings are also discussed in the paper.

Keywords: Nonlinearity, Market Efficiency, Bicorrelations, Predictability, Stock Markets

JEL Classification: G14, G15, C49

Suggested Citation

Lim, Kian-Ping and Brooks, Robert Darren, The Evolving and Relative Efficiencies of Stock Markets: Empirical Evidence from Rolling Bicorrelation Test Statistics (June 2006). Available at SSRN: https://ssrn.com/abstract=931071 or http://dx.doi.org/10.2139/ssrn.931071

Kian-Ping Lim (Contact Author)

Universiti Malaya ( email )

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

Robert Darren Brooks

Monash University ( email )

Wellington Road
Clayton, Victoria 3168
Australia

Financial Research Network (FIRN)

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

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