Efficient markets hypothesis and daily variation in small Pacific‐basin stock markets

Abstract

Purpose The purpose of this paper is to indicate the existence of certain time series characteristics in daily stock returns of four small Asian (Pacific basin) financial markets. It aims to study efficient capital markets (efficient markets hypothesis (EMH)) as results may infer that there are predictable properties of the time series of prices of traded securities on organized markets in Singapore, Malaysia, Korea and Indonesia. Design/methodology/approach The paper analyses daily variations in financial market data obtained from the Sandra Ann Morsilli Pacific‐basin Capital Markets Research Center (PACAP). Findings The weak form efficiency test example examines the wide range of trading rules available to common investors. Some theorists try to convince everyone that the weak form of EMH is acceptable due to the weight of academic opinion. The paper finds that for short‐term (daily) changes, the markets of four of the smaller Pacific‐basin stock markets have predictable properties, which leads to the conclusion that the weak‐form EMH does not hold for these markets. Research limitations/implications The study is limited to those firms and exchanges studied and the time period covered. Originality/value There have been all too few studies of these small financial markets up to now and there is no other study utilizing these data on the Pacific basin (Asia). The results are unique and original.

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