A Multifractality Measure of Stock Market Efficiency in Asean Region

Harvey M. Niere


This paper investigates the presence of multifractality property of the daily composite stock price index of the six countries in the Association of Southeast Asian Nation (ASEAN) region using the multifractal detrended fluctuation analysis (MFDFA). Covering the period from January 2, 2006 to June 28, 2013, the countries under study are the following: Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam. If multifractality is present, then the traditional time series models of fractional Brownian motion and GARCH processes are inadequate to capture the stylized facts observed in financial time series which include long-range correlations and broad fat-tail distributions. The study also employs a sliding window MFDFA to obtain the dynamics of the local Hurst exponents which can be used as a measure of market efficiency.

The findings suggest that the stock price indices of the six countries under study have the properties of multifractality. These suggest that the traditional time series models of fractional Brownian motion and GARCH processes are not appropriate and a call for a better model which incorporates multifractality and non-Gaussian distributions is made. Moreover, an efficiency ranking of stock markets of the six countries under study is provided. This result is important to guide investors seeking profit opportunity which is dependent upon market efficiency. It is also important to help policy makers decide to implement institutional reforms aimed at increasing market efficiency.

Keywords: Efficiency, Financial Markets, Multifractality, Hurst Exponent

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ISSN (Paper)2222-1905 ISSN (Online)2222-2839

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