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Stock Market Efficiency and Integration: A Study of Eight Economies in the Asia-Pacific Region

Author:

Dimuthu Samaratunga

Economic Research Department of the Central Bank of Sri Lanka, LK
About Dimuthu
Mrs. Dimuthu Samaratunga is a Senior Economist of the Economic
Research Department of the Central Bank of Sri Lanka. She
received a B.Sc. Honours Degree in Statistics and an MBA from the
University of Colombo, and an M.Sc. in Economics and Finance
from the University of Warwick, UK. Her research interests are
mainly in the areas of Financial Market Analysis and
Macroeconomic Management.
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Abstract

A stock market is considered to be efficient if it accurately reflects all the relevant information in determining security prices. In international stock markets, if the assets with identical risks offer similar level of expected returns, then markets are said to be integrated.

This paper investigates the stock market efficiency and integration of eight selected economies in the Asia-Pacific region. The sample is composed of 4 Emerging/ Developing (Sri Lanka, China, Malaysia and Pakistan) and 4 Developed (Australia, Hong Kong, Japan and Singapore) markets. The motivation of this paper is two-fold. The first objective is to investigate whether the selected stock markets are efficient at individual level, while the second is to examine whether international diversification is effective.

The results revealed that there is no evidence against the efficiency of Japan's stock market while markets of Sri Lanka, Pakistan and Australia are proved to be inefficient. For China, Malaysia, Hong Kong and Singapore, the tests gave inconclusive results with regard to market efficiency. The cointegration analysis confirmed that there are no long-run co-movements between the stock prices, and thus international diversification within economies in the sample is effective.

DOI: 10.4038/ss.v38i1.1223

Staff Studies Volume 38 Numbers 1& 2 2008 p.95-117

Keywords: Stock market 
How to Cite: Samaratunga, D., (2009). Stock Market Efficiency and Integration: A Study of Eight Economies in the Asia-Pacific Region. Staff Studies. 38(1), pp.95–117. DOI: http://doi.org/10.4038/ss.v38i1.1223
Published on 14 Oct 2009.
Peer Reviewed

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