Stock Market Efficiency before and after a Financial Liberalisation Reform

Michail Karoglou
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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

Journal of Emerging Market Finance, 2009, vol. 8, issue 3, 315-340

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.

Keywords: JEL Classification: C22; JEL Classification: G14; JEL Classification: C14; JEL Classification: C51; Financial liberalisation; volatility; breaks; stock market efficiency (search for similar items in EconPapers)
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:sae:emffin:v:8:y:2009:i:3:p:315-340

DOI: 10.1177/097265270900800304

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