Multifractality and efficiency: Evidence from Malaysian sectoral indices

Lye, Chun-Teck and Hooy, Chee-Wooi (2012) Multifractality and efficiency: Evidence from Malaysian sectoral indices. International Journal of Economics and Management, 6 (2). pp. 278-294. ISSN 1823-836X

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Abstract

his study examines the weak-form efficiency of Malaysian sectoral indices using multifractal detrended fluctuation analysis. The study also uses the rolling window approach to scrutinize the dynamics of weak-form efficiency of Malaysian sectoral stock market. The overall empirical findings revealed that the Malaysian sectoral indices possess multifractality as a result of both fat-tailed probability distribution and long-range correlations. The dynamics of the local Hurst exponents acquired via rolling window approach showed that the Malaysian sectoral efficiency is adversely affected by both Asian and global financial crises, and also negatively impacted by the capital control implemented by the Malaysian government during the Asian financial crisis. The findings suggest that forecasting models that incorporate multifractality might be more appropriate for Malaysian sectoral volatility and crash predictions. Malaysian experience also demonstrates that policy makers should carefully decide on the proper monetary regime as the policy also holds important role in improving the stock market efficiency. A ranking of the sectoral indices according to their relative weak-form efficiency is also presented in this study.

Item Type: Article
Subjects: H Social Sciences > HG Finance
Depositing User: Ms Rosnani Abd Wahab
Date Deposited: 07 Apr 2014 08:10
Last Modified: 07 Apr 2014 08:10
URI: http://shdl.mmu.edu.my/id/eprint/5408

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