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The efficiency of the stock market in the CARICOM sub-region: an empirical study

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  • Patrick Kent Watson

Abstract

The objective of this article is to determine whether the stock exchanges of Barbados, Jamaica, Trinidad and Tobago and the virtual Caribbean Community and Common Market (CARICOM) Regional Stock Exchange (CRSE), as well as the banking, conglomerate, financial and manufacturing sectors of these exchanges, are weak-form efficient or not. Three sets of tests are used: two parametric and one nonparametric. There are lot of similarities in the evidence provided by the two parametric approaches: a traditional Box-Jenkins-type 'correlation' analysis to test the random-walk hypothesis and the Lo-MacKinlay's heteroscedasticity-robust and nonrobust variance-ratio tests. However, a nonparametric variant of the Lo-MacKinlay test due to Wright, based on ranks and signs, generally provides quite different results, particularly the sign test. A recommendation is made to use Wright's tests in preference to the others when examining efficiency in the CARICOM and similar exchanges. This leads to the conclusion that all exchanges and their sectors are inefficient although the Box-Jenkins and Lo-MacKinlay parametric variance ratio tests suggest that the Barbados Stock Exchange (BSE) and some of the sectors in this and the Jamaica Stock Exchange (JSE) function efficiently.

Suggested Citation

  • Patrick Kent Watson, 2009. "The efficiency of the stock market in the CARICOM sub-region: an empirical study," Applied Financial Economics, Taylor & Francis Journals, vol. 19(23), pages 1915-1924.
    • Handle: RePEc:taf:apfiec:v:19:y:2009:i:23:p:1915-1924
    DOI: 10.1080/09603100903183465
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    Cited by:

    1. Hiremath, Gourishankar S & Bandi, Kamaiah, 2012. "Variance ratios, structural breaks and nonrandom walk behaviour in the Indian stock returns," MPRA Paper 48710, University Library of Munich, Germany.
    2. C. Justin Robinson & Prosper Bangwayo-Skeete, 2017. "Parliamentary Elections and Frontier Stock Markets: Evidence from Stock Market Reaction to General Elections in the Commonwealth Caribbean," Global Business Review, International Management Institute, vol. 18(5), pages 1077-1088, October.
    3. Denice Bodeutsch & Philip Hans Franses, 2015. "The Stock Exchange of Suriname: Returns, Volatility, Correlations, and Weak-Form Efficiency," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 51(1), pages 130-139, January.

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