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Stock Market Efficiency before and after a Financial Liberalisation Reform

Author

Listed:
  • Michail Karoglou

    (Michail Karoglou is at the Department of Economics Ridley Building 1 (5.17), Newcastle Business School, Newcastle upon Tyne, NE1 7RU, UK, e-mail: m.karoglou@ncl.ac.uk)

Abstract

This article focuses on the deviations from normality of stock returns before and after a financial liberalisation reform, and shows the extent to which inference based on statistical measures of stock market efficiency can be affected by not controlling for breaks. Drawing from recent advances in the econometrics of structural change, it compares the distribution of the returns of five East Asian emerging markets when breaks in the mean and variance are either (i) imposed using certain official liberalisation dates or (ii) detected non-parametrically using a data-driven procedure. The results suggest that measuring deviations from normality of stock returns with no provision for potentially existing breaks incorporates substantial bias. This is likely to severely affect any inference based on the corresponding descriptive or test statistics.

Suggested Citation

  • Michail Karoglou, 2009. "Stock Market Efficiency before and after a Financial Liberalisation Reform," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 8(3), pages 315-340, September.
    • Handle: RePEc:sae:emffin:v:8:y:2009:i:3:p:315-340
    DOI: 10.1177/097265270900800304
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    References listed on IDEAS

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    More about this item

    Keywords

    JEL Classification: C22; JEL Classification: G14; JEL Classification: C14; JEL Classification: C51; Financial liberalisation; volatility; breaks; stock market efficiency;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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