TY - JOUR
T1 - Why do emerging stock markets experience more persistent price deviations from a random walk over time? A country-level analysis
AU - Lim, Kian
AU - Brooks, Robert Darren
PY - 2010
Y1 - 2010
N2 - This paper employs the rolling bicorrelation test to measure the degree of nonlinear departures from a random walk for aggregate stock price indices of fifty countries over the sample period 1995–2005. We find that stock markets in economies with low per capita GDP in general experience more frequent price deviations than those in the high-income group. This clustering effect is not due to market liquidity or other structural characteristics, but instead can be explained by cross-country variation in the degree of private property rights protection. Our conjecture is that weak protection deters the participation of informed arbitrageurs, leaving those markets dominated by sentiment-prone noise traders whose correlated trading causes stock prices in emerging markets to deviate from the random walk benchmarks for persistent periods of time. © 2009, Cambridge University Press. All rights reserved.
AB - This paper employs the rolling bicorrelation test to measure the degree of nonlinear departures from a random walk for aggregate stock price indices of fifty countries over the sample period 1995–2005. We find that stock markets in economies with low per capita GDP in general experience more frequent price deviations than those in the high-income group. This clustering effect is not due to market liquidity or other structural characteristics, but instead can be explained by cross-country variation in the degree of private property rights protection. Our conjecture is that weak protection deters the participation of informed arbitrageurs, leaving those markets dominated by sentiment-prone noise traders whose correlated trading causes stock prices in emerging markets to deviate from the random walk benchmarks for persistent periods of time. © 2009, Cambridge University Press. All rights reserved.
KW - Degree of Market Efficiency
KW - Determinants of Market Efficiency
KW - Private Property Rights
KW - Random Walk
UR - http://www.scopus.com/inward/record.url?scp=85014416832&partnerID=8YFLogxK
U2 - 10.1017/S1365100509090397
DO - 10.1017/S1365100509090397
M3 - Article
VL - 14
SP - 3
EP - 41
JO - Macroeconomic Dynamics
JF - Macroeconomic Dynamics
SN - 1365-1005
IS - S1
ER -