Islam, Sardar M. N, Watanapalachaikul, Sethapong and Clark, Colin (2007) Some Tests of the Efficiency of the Emerging Financial Markets: An Analysis of the Thai Stock Market. Journal of Emerging Market Finance, 6 (3). pp. 291-302. ISSN 0972-6527

Abstract

Efficient Market Hypothesis (EMH) has attracted a considerable number of studies in empirical finance, particularly in determining the market efficiency of an emerging financial market. Conflicting and inconclusive outcomes have been generated by various existing studies in EMH. In addition, efficiency tests in the emerging financial markets are rarely definitive in reaching a conclusion about the issue. This article proposes a theory–free paradigm of non–parametric tests of market efficiency for an emerging stock market, the Thai stock market, consisting of two tests—run–test and autocorrelation function tests (ACF)—to establish a more definitive conclusion about EMH in emerging financial markets. The result of this research demonstrates that an autocorrelation on Thai stock market returns exists particularly during the post–crisis period. The inefficiency of the Thai stock market follows on from the violation of the necessary conditions for an efficient market with a developed financial system and also implies financial and institutional imperfections.

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