Market-Efficiency (Weak-Form) Tests of the Malaysian Stock Exchange
The stock-price behavior of the United States and Japan has been known to conform to the weak form of the efficient market hypothesis (EWH). The weak form of the EMH implies that the past history of prices cannot provide information that can be used to predict their movements in the future. According to the weak form of the EMH, stock prices are assumed to reflect all information that may be contained in the past history of the stock itself. Since the information itself is random, the stock-price movements should therefore be random.
Interest in the weak form of the EMH of small stock markets outside the United States has rapidly increased since Fama published his work in 1965 on the 30 stocks comprising the Dow Jones Industrial Average. Solnik ( 1973) did a study on European stocks; Conrad and Juttner ( 1973), on the behavior of stocks in Germany; Jennergren and Korsvold ( 1975), on Norwegian and Swedish stocks; Ang and Pohlman ( 1978), on Far Eastern stocks; and D'Ambrosio ( 1980), on Singaporean stocks. the findings were mixed, but most studies concluded that non-U.S. markets do deviate from the weak form of the EMH.
Nassir Lanjong ( 1983), Laurence ( 1986), and Barnes ( 1986) concluded that despite being a small and thinly traded market, the Malaysian stock market, surprisingly, is quite efficient in the weak sense of the EMH. Neoh Soon Kean ( 1985) suggested that the market is quite efficient in the weak form but not in the semistrong form. These studies, however, are not extensive enough and are not sufficiently representative of the market. Laurence ( 1986) used daily data of the 16 most active industrial stocks traded from June 1, 1973, to December 31, 1978, and Barnes ( 1986) used monthly data of the 30 most active stocks traded for the six years ended June 30, 1980, whereas many Malaysian stocks are not actively traded. Nassir Lanjong ( 1983) used monthly data of 104 stocks traded from January 1974
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Publication information: Book title: Business Finance in Less Developed Capital Markets. Contributors: Klaus P. Fischer - Editor, George J. Papaioannou - Editor. Publisher: Greenwood Press. Place of publication: Westport, CT. Publication year: 1992. Page number: 137.
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