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Malaysian Finance Sector Weak-Form Efficiency: Heterogeneity, Structural Breaks, and Cross-Sectional Dependence

Author

Listed:
  • Ching Kok, Sook

    (Universiti Malaysia Sabah)

  • Munir, Qaiser

    (Universiti Malaysia Sabah)

Abstract

This study examines the weak-form efficient market hypothesis (EMH) for the Finance Sector in Malaysian Stock Exchange, by exploring and scrutinizing the firm-level efficiency over for the period from 1st January 1997 to 31st December 2014. For this purpose, we apply panel nonlinear unit root test that accounts for heterogeneity, and panel stationarity test to allow for the presence of structural breaks and crosssectional dependence (CSD). The main findings of this study suggest the following: first, there is a strong CSD among the price series of finance stocks; second, unlike the traditional panel unit root tests that provide mixed-results, the panel stationarity test which incorporates structural breaks and CSD suggests that these series are characterized as random walk processes implying the Finance Sector is weak-form efficient. The finding of weak-form efficiency has salient implications in terms of capital allocation, stock price predictability, forecasting technique, and the impact of shocks to stock prices.

Suggested Citation

  • Ching Kok, Sook & Munir, Qaiser, 2015. "Malaysian Finance Sector Weak-Form Efficiency: Heterogeneity, Structural Breaks, and Cross-Sectional Dependence," Journal of Economics, Finance and Administrative Science, Universidad ESAN, vol. 20(39), pages 105-117.
    • Handle: RePEc:ris:joefas:0089
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    Cited by:

    1. Emilio Abad-Segura & Mariana-Daniela González-Zamar & Eloy López-Meneses & Esteban Vázquez-Cano, 2020. "Financial Technology: Review of Trends, Approaches and Management," Mathematics, MDPI, vol. 8(6), pages 1-37, June.
    2. Solarin, Sakiru Adebola & Hammoudeh, Shawkat & Shahbaz, Muhammad, 2018. "Influence of economic factors on disaggregated Islamic banking deposits: Evidence with structural breaks in Malaysia," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 55(C), pages 13-28.

    More about this item

    Keywords

    Market efficiency; Financial firms; Banks; Heterogeneity; Panel data; Structural breaks; Cross-sectional dependence;
    All these keywords.

    JEL classification:

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

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