The dynamic behavior of evolving efficiency: Evidence from the UAE stock markets

Mohammad Al-Shboul and Nizar Alsharari

The Quarterly Review of Economics and Finance, 2019, vol. 73, issue C, 119-135

Abstract: The study examines the dynamic behavior of evolving efficiency in the United Arab Emirates (UAE) stock markets (i.e. the Dubai Financial Market (DFM) and the Abu Dhabi Stock Exchange (ADSE)) within four subsamples representing four key timeframes: prior to the 2008 global financial crisis (GFC), during the GFC, the Arab uprising crisis (AUC) and the 2014 oil prices crisis (OPC). On the empirical level, the modified logperiodogram (MLP) fractional differencing semi-parametric method is used to measure evolving efficiency. We find that the DFM and ADSE exhibit evidence of evolving efficiency. Both markets are found to be generally inefficient with a trend of improvement towards the weak-form of efficiency. This suggests that stock prices are predictable and possible arbitrage opportunities are present. The study also finds that the evolving efficiency process is: i) time-variant; and ii) exhibits evidence of conditional volatility and volatility persistence. However, we find no evidence of a leverage effect and asymmetric long memory volatility. These findings hold in the full sample and across all subsamples. Finally, we find that the long memory volatility model, in particular FIAPARCH, outperform the GARCH models in long-term, out-of-sample forecasting performance. The study also suggests that shocks resulting from crises do not provide stronger evidence for the dynamic behaviors of evolving efficiency. Our findings are among the foremost criteria for making investment decisions, and can reliably serve the needs of investors in their capital budgeting in order to ideally allocate their investment funds.

Keywords: Evolving efficiency; Volatility persistence; Financial crisis; GARCH (search for similar items in EconPapers)
JEL-codes: C10 C50 G01 G02 G14 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:73:y:2019:i:c:p:119-135

DOI: 10.1016/j.qref.2018.05.007

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