ISSN No - RBS

eported forsome indices.Kok and Lee (1994) analyzed thestock prices behaviour of 32 companieslisted on the Second Board of KLSEover the period 2 January 1992 to 30December 1994. The results fromvarious statistical tests- runs test,serial correlation test, Ljung-Box-Pierce Q test and Von Neumann’sratio test, suggest that informationbased on historical prices is fullyreflected in current price within aweek but may not be fully impoundedin current price within a day. Thus,the Second Board of KLSE is weakformefficient with respect to weeklydata. Though daily price series areserially correlated, the magnitude oftheir correlations is not large enoughto devise any mechanical trading rulesfor profitable investment timing. Kokand Goh (1995) utilized daily, weeklyand monthly closing prices of 7 KLSEstock indices over a period of nineyears from 1984 to 1992. Using similarmethodologies as Kok and Lee(1994), the authors found serialdependencies in successive pricechanges for all KLSE daily stockindices. However, the significantcorrelations found are very small thatit is unlikely to have any economicvalue, and this led the authors toconclude the market is weak formefficient. When weekly data wereused, the efficiency of the Malaysianstock market has improved from aweak-form inefficient market in themid 1980s to a weak-form efficientmarket by the late 1980s and early1990s. Finally, the results frommonthly data provide conclusiveevidence of weak form efficiency,suggesting that market efficiencyimproves with longer temporalaggregation of sample data. Unlikeother studies, Kok and Goh (1995)proceeded to address the issue of meanreversion using long-horizon returns.Though the variance ratio testprovides evidence of mean reversion, itis not statistically significant to rejectthe long run random walk hypothesis.The evidence of non-linearity hasstrong implication on the weak-formEMH for it implies the potential ofpredictability in financial returns.Specifically, if investors could haveprofitably operated a trading rule (netof all transactions costs) that exploitsthis detected non-linearity, it would beat odds with the weak form EMH,which postulate that even non-linearcombinations of previous prices arenot useful predictors of future prices(Brooks, 1996; Brooks and Hinich,1999; McMillan and Speight, 2001).However, Hsieh (1989) argued that thestandard statistical tests such asserial correlation test, runs test,variance ratio test and unit root testsmay fail to detect non-linear departurefrom the random walk hypothesis.Motivated by this concern, Lim et al.(2003c) re-examined the random walkhypothesis as all those earlier KLSEstudies in favour of EMH haveimplicitly disregarded the presence ofnon-linearity, which will have seriousconsequences of making incorrectinferences and policyrecommendations, as highlighted byLiew et al. (2003). Using the Brock-Dechert-Scheinkman (BDS) test,which has been proven to be quitepowerful in detecting departures fromi.i.d. behaviour in some Monte Carlosimulations (see, for example, Brock etal., 1991; Hsieh, 1991)2, Lim et al.(2003c) found the inadequacy ofrandom walk model to describe theDecember 2010 Vol. 7, Issue 2[ 95 ]