Weak-Form Efficient Market Hypothesis versus Behavioural Finance: A Different Perspective Drawn from the Malaysian Stock Market

Authors

  • Kian-Ping Lim Labuan School of International Business and Finance Universiti Malaysia Sabah, Malaysia
  • Venus Khim-Sen Liew Labuan School of International Business and Finance Universiti Malaysia Sabah, Malaysia
  • Hock-Tsen Wong School of Businees and Economics Universiti Malaysia Sabah, Malaysia

DOI:

https://doi.org/10.32890/ijms2005.12.1.1

Keywords:

Data generating process, Weak-form efficient market hypothesis, Behavioural finance, Stock market, Malaysia

Abstract

This study utilises the windowed testing procedure of Hinich & Patterson (1995) to examine the data generating process of KLCI returns series. Unlike previous studies, the present one relates the evidence to the weak-form Efficient Market Hypothesis (EMH) and behavioural finance, with the hope of offering some plausible explanations to the controversy existing between these two camps. Our econometrics results indicate that linear and non-linear dependencies play a significant role in the underlying data generating process. However, these dependencies are not stable as the results reveal that they are episodic and transient in nature. Along the line of our interpretations, we are able to offer some plausible explanations as to why weak-form EMH generally holds in the Malaysian stock market, though the presence of linear and nonlinear dependencies implies the potential of returns predictability. Specifically, these significant dependencies show up at random intervals for a brief period of time but then disappear again before they can be exploited by investors. Looking from a micro perspective, we are able to rationalise the co-existence of weak-form EMH and behavioural finance in the Malaysian stock market when the statistical properties of random walk, linear and non-linear dependencies, which also co-exist in the time domain, are interpreted in the framework of information arrival and market reactions to that information.

 

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Published

29-06-2005

Issue

Vol. 12 No. 1 (2005): International Journal of Management Studies (IJMS) Vol. 12, No. 1 June 2005

Section

Articles

Research impact

Harvested 2026-09-08
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Identifiers DOI 10.32890/ijms2005.12.1.1 OpenAlex W7044191970

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