Fundamental Value Hypothesis and Return Behavior: Evidence from Emerging Equity Markets

Benjamas Jirasakuldech (), Riza Emekter () and Peter Went ()
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Benjamas Jirasakuldech: University of the Pacific, Eberhardt School of Business, 3601 Pacific Avenue, Stockton, CA 95211, USA
Riza Emekter: Sakarya University, Adapazari 54184, Turkey
Peter Went: Bucknell University, Department of Management, 312 Taylor Hall, Lewisburg, PA 17837, USA

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2006, vol. 09, issue 01, 97-127

Abstract: This study examines the return behavior of 15 emerging equity markets for persistent deviations from the fundamental value hypothesis. The duration dependence test shows that rational expectations bubble do not cause deviations from fundamental value in any of the markets. Markov chain test results imply that markets in China, Malaysia, the Philippines, and Singapore deviate from their fundamental values due to non-random price changes. A price decrease is more likely to follow two periods of price decrease in these four equity markets. Finally, time reversibility test reveals that all equity markets, except for Jordan and Egypt, exhibit asymmetrical price patterns, suggesting departures from fundamental values.

Keywords: Fundamental value hypothesis; rational bubbles; emerging markets; markets; return behavior; JEL Classification: G14; JEL Classification: G15 (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (3)

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DOI: 10.1142/S0219091506000689

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