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Time-varying return predictability in South Asian equity markets

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  • Rahman, Md. Lutfur
  • Lee, Doowon
  • Shamsuddin, Abul

Abstract

Time-varying return predictability in four South Asian stock markets is examined using the wild-bootstrapped automatic variance ratio test and price delay measures. Strong evidence of predictability is found in aggregate market and size-sorted portfolio returns. The cross-sectional variation in return predictability is inversely related to firm size and trading frequency, while the time variation in return predictability is related to market conditions—the level of equity market development, liquidity, volatility, automation of trading mechanism and financial crises. These results strongly corroborate Lo's (2004) adaptive market hypothesis, and are robust to controlling for thin trading, changes in data frequency, and use of alternative return predictability measures.

Suggested Citation

  • Rahman, Md. Lutfur & Lee, Doowon & Shamsuddin, Abul, 2017. "Time-varying return predictability in South Asian equity markets," International Review of Economics & Finance, Elsevier, vol. 48(C), pages 179-200.
    • Handle: RePEc:eee:reveco:v:48:y:2017:i:c:p:179-200
    DOI: 10.1016/j.iref.2016.12.004
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    3. Labidi, Chiaz & Rahman, Md Lutfur & Hedström, Axel & Uddin, Gazi Salah & Bekiros, Stelios, 2018. "Quantile dependence between developed and emerging stock markets aftermath of the global financial crisis," International Review of Financial Analysis, Elsevier, vol. 59(C), pages 179-211.
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    More about this item

    Keywords

    Return predictability; Adaptive market hypothesis; South Asian stock markets; Variance ratio; Price delay;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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