EMERGING MARKETS EFFICIENT OR ADAPTIVE? EVIDENCE FROM ASIA

Faraz AHMAD¹
Muhammad Naeem SHAHID¹*
Ayesha ATEEQ²
Ahsan ZUBAIR³
Saif ul NAZIR⁴

ABSTRACT

The paper investigated whether the predictability of return was efficient or adaptive in two different emerging stock markets of Asia; Pakistan and India, by using time series data. For this purpose, the daily returns data of KSE-100 and NIFTY-50 was examined. The sample covered the data of 24 years of the both stock markets (for KSE-100; from January 1992 to December 2015 and for NIFTY-50; from January 1994 to October 2017). A sub sample analysis was used in this research, and the both stock markets were divided into sub samples of four years to apply the linear tests to examine how the stock returns have behaved over the time. The results of the linear tests (autocorrelation, runs, variance and unit root tests) disclosed that the stock markets of the both countries showed evident consistency with AMH, where the returns were fluctuating between the periods of efficiency and inefficiency. Therefore, we found that the linear dependency of both of the stock markets changes over time, and Adaptive Market Hypothesis (AMH) gives a better depiction of stock returns’ behavior than the traditional Efficient Market Hypothesis (EMH).

Keywords: Adaptive Market Hypothesis, Linear Dependence, Efficient Market Hypothesis

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