Randomness for asset prices constrained by price limit regimes: a Malaysian case study
Empirical works testing randomness of stock prices are abundant. Such findings, however, can be challenged if time-series datasets examined are subjected to price limits, which, ex vi termini, enforce bounded movements. This article examines the random walk hypothesis for Malaysian equity marke...
| Main Authors: | , |
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| Format: | Article |
| Language: | English English |
| Published: |
Portfolio Management Research
2019
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| Subjects: | |
| Online Access: | http://irep.iium.edu.my/80164/ http://irep.iium.edu.my/80164/12/80164_Randomness%20for%20Asset%20Prices%20Constrained%20_article_new.pdf http://irep.iium.edu.my/80164/2/80164_Randomness%20for%20Asset%20Prices%20Constrained%20_wos.pdf |
| _version_ | 1848788911429517312 |
|---|---|
| author | Sifat, Imtiaz Mohamma Mohamad, Azhar |
| author_facet | Sifat, Imtiaz Mohamma Mohamad, Azhar |
| author_sort | Sifat, Imtiaz Mohamma |
| building | IIUM Repository |
| collection | Online Access |
| description | Empirical works testing randomness
of stock prices are abundant. Such findings, however, can be challenged if time-series datasets
examined are subjected to price limits, which,
ex vi termini, enforce bounded movements. This
article examines the random walk hypothesis for
Malaysian equity market under three price limit
regimes from January 1994 to September 2017.
Price limits have been active in Malaysia’s solitary
bourse since 1989 with periodic revisions. Identifying a sample of 407 actively traded instruments
that triggered limits on 5,843 occasions, the authors
use parametric (Ljung–Box, Lo and MacKinlay,
and Chow–Denning) and nonparametric (Wald–
Wolfowitz runs and Broock–Decher–Scheinkman
independence) tests to investigate whether prices
under different circuit breaker regimes follow a
random walk path, an indicator of market efficiency.
Upon comparison with the composite FBMKLCI
index and sectoral indexes—the bulk of which reject
the random walk hypothesis—the study finds considerable support for randomness across all regimes
for upper and lower limit-hit stocks. Moreover,
progressive tightening of the price limit appears
to correspond with a lower proportion of limit-hit
stocks following a random path. The findings carry
implications for regulators and academia. First, the
unusually wide price band in Malaysia appears to
outperform the tighter limits studied earlier. Second,
the findings furnish direct evidence of price randomness and price discovery in the financial economics
literature and provide indirect evidence of circuit
breaker efficacy to market microstructure literature.
Third, econometric issues arising from disparate
results of various tests are indicated, with ramifications for methodological developments. The article
concludes with suggestions for future research. |
| first_indexed | 2025-11-14T17:48:21Z |
| format | Article |
| id | iium-80164 |
| institution | International Islamic University Malaysia |
| institution_category | Local University |
| language | English English |
| last_indexed | 2025-11-14T17:48:21Z |
| publishDate | 2019 |
| publisher | Portfolio Management Research |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | iium-801642020-09-04T00:52:29Z http://irep.iium.edu.my/80164/ Randomness for asset prices constrained by price limit regimes: a Malaysian case study Sifat, Imtiaz Mohamma Mohamad, Azhar HG Finance HG4001 Financial management. Business finance. Corporation finance. Empirical works testing randomness of stock prices are abundant. Such findings, however, can be challenged if time-series datasets examined are subjected to price limits, which, ex vi termini, enforce bounded movements. This article examines the random walk hypothesis for Malaysian equity market under three price limit regimes from January 1994 to September 2017. Price limits have been active in Malaysia’s solitary bourse since 1989 with periodic revisions. Identifying a sample of 407 actively traded instruments that triggered limits on 5,843 occasions, the authors use parametric (Ljung–Box, Lo and MacKinlay, and Chow–Denning) and nonparametric (Wald– Wolfowitz runs and Broock–Decher–Scheinkman independence) tests to investigate whether prices under different circuit breaker regimes follow a random walk path, an indicator of market efficiency. Upon comparison with the composite FBMKLCI index and sectoral indexes—the bulk of which reject the random walk hypothesis—the study finds considerable support for randomness across all regimes for upper and lower limit-hit stocks. Moreover, progressive tightening of the price limit appears to correspond with a lower proportion of limit-hit stocks following a random path. The findings carry implications for regulators and academia. First, the unusually wide price band in Malaysia appears to outperform the tighter limits studied earlier. Second, the findings furnish direct evidence of price randomness and price discovery in the financial economics literature and provide indirect evidence of circuit breaker efficacy to market microstructure literature. Third, econometric issues arising from disparate results of various tests are indicated, with ramifications for methodological developments. The article concludes with suggestions for future research. Portfolio Management Research 2019 Article PeerReviewed application/pdf en http://irep.iium.edu.my/80164/12/80164_Randomness%20for%20Asset%20Prices%20Constrained%20_article_new.pdf application/pdf en http://irep.iium.edu.my/80164/2/80164_Randomness%20for%20Asset%20Prices%20Constrained%20_wos.pdf Sifat, Imtiaz Mohamma and Mohamad, Azhar (2019) Randomness for asset prices constrained by price limit regimes: a Malaysian case study. Journal of Private Equity, 22 (4). pp. 111-144. ISSN 1096-5572 https://jpe.pm-research.com/content/22/4/111.full 10.3905/jpe.2019.22.4.111 |
| spellingShingle | HG Finance HG4001 Financial management. Business finance. Corporation finance. Sifat, Imtiaz Mohamma Mohamad, Azhar Randomness for asset prices constrained by price limit regimes: a Malaysian case study |
| title | Randomness for asset prices constrained by price limit regimes: a Malaysian case study |
| title_full | Randomness for asset prices constrained by price limit regimes: a Malaysian case study |
| title_fullStr | Randomness for asset prices constrained by price limit regimes: a Malaysian case study |
| title_full_unstemmed | Randomness for asset prices constrained by price limit regimes: a Malaysian case study |
| title_short | Randomness for asset prices constrained by price limit regimes: a Malaysian case study |
| title_sort | randomness for asset prices constrained by price limit regimes: a malaysian case study |
| topic | HG Finance HG4001 Financial management. Business finance. Corporation finance. |
| url | http://irep.iium.edu.my/80164/ http://irep.iium.edu.my/80164/ http://irep.iium.edu.my/80164/ http://irep.iium.edu.my/80164/12/80164_Randomness%20for%20Asset%20Prices%20Constrained%20_article_new.pdf http://irep.iium.edu.my/80164/2/80164_Randomness%20for%20Asset%20Prices%20Constrained%20_wos.pdf |