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

Olaoluwa Yaya, Xuan Vinh Vo and Oluwasegun Adekoya ()

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Stock market efficiency; GARCH; Unit root; Structural breaks; Asia (search for similar items in EconPapers)
JEL-codes: C22 G01 G15 (search for similar items in EconPapers)
Date: 2021-09-14
New Economics Papers: this item is included in nep-cwa, nep-ets, nep-fmk, nep-isf, nep-ore and nep-sea
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