Predictability, Price Bubbles, and Efficiency in the Indonesian Stock-Market

Fahad Almudhaf

Bulletin of Indonesian Economic Studies, 2018, vol. 54, issue 1, 113-124

Abstract: I examine the return predictability of the Indonesian stock-market during 1984–2016, in rolling windows, using an automatic portmanteau test and an automatic variance ratio. I find that the market’s efficiency and predictability vary over time—consistent with the adaptive market hypothesis—with returns being less predictable in recent periods, a sign of improving efficiency. I also find that a simple buy-and-hold investment strategy outperforms several technical trading rules, even after adjusting for risk. Furthermore, I find evidence of explosive behaviour in Indonesian stock prices and detect multiple bubbles, using sequential right-tailed unit-root tests.

Date: 2018
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DOI: 10.1080/00074918.2017.1311007

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Bulletin of Indonesian Economic Studies is currently edited by Firman Witoelar Kartaadipoetra, Arianto Patunru, Robert Sparrow, Sarah Xue Dong and Sean Muir

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