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The Return Predictability and Market Efficiency of the KLSE CI Stock Index Futures Market

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  • J.L. Ford
  • Wee Ching Pok
  • S. Poshakwale

Abstract

Numerous studies have shown that returns on stocks and futures can to some extent be predicted over time, and that for developed financial markets, the predictions are compatible with the beta-asset pricing (APT) paradigm. Increasingly, more studies have been undertaken to test the veracity of such a paradigm in emerging markets. It has been contended that the paradigm is inapplicable to those markets and will, in any event, be unable to account for predicted asset returns. In this study we consider the Stock Exchange futures market in Malaysia, which has been neglected in the literature. Our econometric findings (using GMM) indicate that the APT model can be used as a rationale for the predictability of asset returns using local information, with the betas being constant and the expected risk premia being time-varying. JEL Classification : C5, F3, G1

Suggested Citation

  • J.L. Ford & Wee Ching Pok & S. Poshakwale, 2012. "The Return Predictability and Market Efficiency of the KLSE CI Stock Index Futures Market," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 11(1), pages 37-60, April.
    • Handle: RePEc:sae:emffin:v:11:y:2012:i:1:p:37-60
    DOI: 10.1177/097265271101100102
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    References listed on IDEAS

    as
    1. Ferson, Wayne E & Korajczyk, Robert A, 1995. "Do Arbitrage Pricing Models Explain the Predictability of Stock Returns?," The Journal of Business, University of Chicago Press, vol. 68(3), pages 309-349, July.
    2. Wee Ching Pok & Sunil Poshakwale, 2004. "The impact of the introduction of futures contracts on the spot market volatility: the case of Kuala Lumpur Stock Exchange," Applied Financial Economics, Taylor & Francis Journals, vol. 14(2), pages 143-154.
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    More about this item

    Keywords

    APT; market efficiency; stock index futures; emerging market; return predictability;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • F3 - International Economics - - International Finance
    • G1 - Financial Economics - - General Financial Markets

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