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Chapter 9 Evidence of bubbles in the Malaysian stock market

Asia-Pacific Financial Markets: Integration, Innovation and Challenges

ISBN: 978-0-7623-1471-3, eISBN: 978-1-84950-514-7

Publication date: 12 December 2007

Abstract

We tested for evidence of stock price bubbles in the Malaysian stock market from 1978 to 2004. Four different tests were used namely excess volatility tests, unit root/co-integration tests, duration dependence tests, and the intrinsic bubbles model. All four tests indicate that during the sample period, there was evidence of stock price bubbles. All tests results conform to the theoretical literature on asset price bubbles except for the results on the intrinsic bubbles model, which concludes that Malaysian investors under react to information on dividends. We find this result hardly surprising as anecdotal evidence does indicate that Malaysian investors place more importance on capital gains as compared to dividends. Although we do not go into a debate on whether authorities should be prick the bubble to stem its negative effects, we argue that transparent information dissemination will ensure that the stock market becomes more efficient in pricing stocks.

Citation

Rangel, G.J. and Pillay, S.S. (2007), "Chapter 9 Evidence of bubbles in the Malaysian stock market", Kim, S.-J. and Mckenzie, M.D. (Ed.) Asia-Pacific Financial Markets: Integration, Innovation and Challenges (International Finance Review, Vol. 8), Emerald Group Publishing Limited, Leeds, pp. 175-202. https://doi.org/10.1016/S1569-3767(07)00009-X

Publisher

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Emerald Group Publishing Limited

Copyright © 2007, Emerald Group Publishing Limited