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Market Efficiency of Asian Stocks: Evidence based on Narayan-Liu-Westerlund GARCH-based Unit root test

Author

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  • Yaya, OlaOluwa S.
  • Vo, Xuan Vinh
  • Adekoya, Oluwasegun B.

Abstract

This study uses the recently developed Generalized Autoregressive Conditional Heteroscedasticity (GARCH) model-based unit root test of Narayan et al. (2016) to examine the stock market efficiency of 19 Asian countries, using daily prices. The model flexibly accounts for heteroskedasticity and two structural breaks, the presence of which can lead to inaccurate results if neglected. Our results disclose the stock markets of 14 countries as inefficient following the rejection of the unit root null hypothesis. However, the stock markets of China, Hong Kong, Japan and the Korea Republic are adjudged efficient. We further extend the model to accommodate a maximum of five breaks to check the robustness of our results to higher breaks. We observe that the results are largely consistent except for Lebanon and Singapore. For completeness, we compare the results with those of conventional GARCH models that do not account for structural breaks and discover differing results for some countries. Hence, the role of structural breaks is not negligible in assessing market efficiency. Future studies should also incorporate heteroskedasticity and structural breaks in their modelling framework to obtain accurate results.

Suggested Citation

  • Yaya, OlaOluwa S. & Vo, Xuan Vinh & Adekoya, Oluwasegun B., 2021. "Market Efficiency of Asian Stocks: Evidence based on Narayan-Liu-Westerlund GARCH-based Unit root test," MPRA Paper 109828, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:109828
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    References listed on IDEAS

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    More about this item

    Keywords

    Stock market efficiency; GARCH; Unit root; Structural breaks; Asia;
    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
    • G01 - Financial Economics - - General - - - Financial Crises
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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