Title: The impact of volatility shifts on market efficiency: the case of four emerging Southeast Asian stock markets

Authors: Hui-Boon Tan; Mei-Foong Wong; Elgilani Eltahir Elshareif

Addresses: Nottingham University Business School, University of Nottingham Malaysia Campus, Jalan Broga, 43500 Semenyih, Selangor Darul Ehsan, Malaysia ' Department of Finance, Faculty of Accountancy, Finance and Business, Tunku Abdul Rahman University College, Jalan Genting Kelang, 53300 Setapak, Kuala Lumpur, Malaysia ' Department of Finance, School of Graduate Studies, Canadian University of Dubai, 1st Interchange, Sheikh Zayed Rd., P.O. Box 117781, Dubai, United Arab Emirates

Abstract: The purpose of this paper is to analyse the behaviour of four Southeast Asian stock markets during the intervals of high uncertainties that accompany crises. Our analysis emphasises the effect of unexpected volatility shifts on market efficiency of the four emerging Southeast Asian markets over the past two decades. The purpose of this study is achieved through the iterated-cumulative-sum-of-squares-in-volatility (ICSS-EGARCH-M) model, a new approach in market efficiency studies. The empirical results of this study support rejection of the efficient market hypothesis for these markets, even when unexpected volatility shifts are integrated in the models. The results also provide significant empirical evidence for a positive risk-return tradeoff in the stock markets. Moreover, the stock markets are revealed to be more sensitive to global events than local. Except for the Philippines, asymmetrical responses to good and bad news are also part of the market behaviour for the markets.

Keywords: Southeast Asia; stock markets; EGARCH-M; ICSS algorithm; volatility shifts; market efficiency; emerging markets; Malaysia; Indonesia; Philippines; Thailand; risk-return tradeoff; global events.

DOI: 10.1504/GBER.2015.068568

Global Business and Economics Review, 2015 Vol.17 No.2, pp.203 - 216

Available online: 17 Mar 2015 *

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