Kian-Ping Lim is a Senior Lecturer in the Faculty of Economics and Administration at University of Malaya.

He holds a PhD degree from Monash University, with his thesis explores empirical issues related to the informational efficiency of stock markets. Chapter 2 of his thesis, published in Journal of Economic Surveys, summarizes the past, present and future of the return predictability literature, including his own contributions to the field. More specifically, his decade-long research on market efficiency addresses the possible existence of nonlinear return predictability, and advocates the use of research framework that is capable of measuring the degree of market efficiency across stocks/markets and over time. Theoretically, the relative and evolving market efficiency are grounded on the adaptive markets hypothesis (AMH), a new framework that offers reconciliation between the competing camps of efficient markets hypothesis and behavioral finance.

KP’s  long-term research on stock markets has produced publications in Applied Economics (Taylor & Francis), Economic Modelling (Elsevier), Economics Letters (Elsevier), Journal of Economic Surveys (Wiley-Blackwell), Journal of Emerging Market Finance (Saga), Journal of Empirical Finance (Elsevier), Journal of International Financial Markets, Institutions & Money (Elsevier), Journal of Policy Modeling (Elsevier), International Review of Financial Analysis (Elsevier), Macroeconomic Dynamics (Cambridge University Press), Manchester School (Wiley-Blackwell), and North American Journal of Economics & Finance (Elsevier).

Click here for his 2013 featured bio!

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Representative Publications

  • Foreign investors and stock price efficiency: Thresholds, underlying channels and investor heterogeneity

    Foreign investors and stock price efficiency: Thresholds, underlying channels and investor heterogeneity

    North American Journal of Economics and Finance, 2016, Elsevier, 36, 1-28

    This is the first paper in the extant empirical literature to examine the role of foreign investors in Bursa Malaysia, despite its incorporation for more than four decades. Among the novel contributions, this paper shows the existence of a threshold level in foreign ownership, explores the underlying price efficiency channels, and determines the differential impact of foreign investor heterogeneity. A unique finding that we uncover is the important information role played by foreign nominees, who have been found to be elite processors of public market-wide and firm-specific news in the Malaysian stock market. However, such price discovery does not occur when foreign investors trade through direct accounts.

    Our unique finding on foreign nominees complements the discovery of informed trading through the accounts of children in Finland by Berkman et al. (2014).

    Publication Details

  • Are US stock index returns predictable? Evidence from automatic autocorrelation-based tests

    Are US stock index returns predictable? Evidence from automatic autocorrelation-based tests

    Applied Economics, 2013, Taylor and Francis, 45(8), 953-962

    Autocorrelation-based tests are popular because the presence of autocorrelations is theoretically grounded. This paper advocates two recently developed autocorrelation-based tests in which the lag order/holding period is selected automatically, and thus avoids the arbitrary selection that causes conflicting results. In the application, we show that the new tests should be employed in rolling framework to track the changing degree of efficiency. This is because even the most developed U.S. stock markets are not efficient all the time!

    Publication Details           WoS Citation            Google Citation

  • The weak-form efficiency of Asian stock markets: New evidence from generalized spectral martingale test

    The weak-form efficiency of Asian stock markets: New evidence from generalized spectral martingale test

    Applied Economics Letters, 2012, Taylor and Francis, 19(10), 905-908

    The survey paper by Lim and Brooks (2011, JES) shows that statistical tests of the weak-form market efficiency focus on uncovering autocorrelations, nonlinear serial dependency and long memory. However, we argue in this paper that the most appropriate econometric approach is to examine whether the stock returns are Martingale Difference Sequence (MDS), implying no serial dependence, either linear or nonlinear, in the conditional mean of the return series. In our empirical application, we advocate the generalized spectral martingale test, and show that the test can pick up dependency structure that passes through variance ratio tests, while at the same time will not falsely proclaim market efficiency when there exists serial dependence in higher order conditional moment.

    Publication Details               WoS Citation          Google Citation

  • Trade openness and the informational efficiency of emerging stock markets

    Trade openness and the informational efficiency of emerging stock markets

    Economic Modelling, 2011, Elsevier, 28(5), 2228-2238

    This paper departs from trade openness’s traditional focus on economic growth to a relatively less-explored area, the informational efficiency of stock markets. There are at least two novel contributions to the existing literature. First, we measure market efficiency in relative rather than absolute form, using the absolute value of the variance ratio minus one with the optimal holding period been selected automatically. Second, we find that the positive relationship between trade openness and market efficiency is only significant when de facto measure is used, contradicting the existing theoretical model where openness is defined as the elimination of trade barriers. To rationalize our new finding, we offer an information-based explanation in which trade openness signals higher future firm profitability, and investors tend to react faster to information when there is less uncertainty about a firm’s future earnings or cash flows.

    Our call to further determine the lack of association between financial liberalization and market efficiency has been picked up by Naghavi and Lau (2014).

    Publication Details          WoS Citation        Google Citation

  • The evolution of stock market efficiency over time: A survey of the empirical literature

    The evolution of stock market efficiency over time: A survey of the empirical literature

    Journal of Economic Surveys, 2011, Wiley-Blackwell, 25(1), 69-108

    Nearly five decades after Eugene Fama proposes the efficient markets hypothesis (EMH), there is still no consensus on whether the stock markets are efficient or not. This paper offers a new perspective on the subject matter, arguing that informational efficiency varies over time (evolving market efficiency) and across stock markets (relative market efficiency). After assembling empirical evidence supporting the concepts of relative and evolving market efficiency, this paper argues in a favor of a new framework, the adaptive markets hypothesis (AMH), to replace the once dominant EMH.

    The idea of our paper is nicely executed by Niemczak and Smith (2013).

    Publication Details          WoS Citation        Google Citation

  • Stock return predictability and the adaptive markets hypothesis: Evidence from century-long U.S. data

    Stock return predictability and the adaptive markets hypothesis: Evidence from century-long U.S. data

    Journal of Empirical Finance, 2011, Elsevier, 18(5), 868- 879

    This paper operationalizes the adaptive markets hypothesis (AMH) by testing its two implications. We first follow previous studies to test AMH’s implication of time-varying return predictability, and reaffirm market efficiency is not a static characteristic. The novelty of our paper lies in providing the first empirical evidence on the often neglected implication of AMH, namely the degree of return predictability is dependent upon market conditions as manifested by market crashes, fundamental economic or political crises, economic bubbles and regulatory regimes. This latter implication requires measuring market efficiency in the relative sense, which we implement using automatic variance ratio test, automatic portmanteau test and generalized spectral test. The statistics from these tests allow us to run regression against indicators for market conditions and a set of control variables. Using a century-long Dow Jones Industrial Average index, we find evidence supporting the two testable implications of AMH, highlighting market conditions do matter for return predictability.

    Publication Details          WoS Citation        Google Citation

  • Why do emerging stock markets experience more persistent price deviations from a random walk over time? A country-level analysis

    Why do emerging stock markets experience more persistent price deviations from a random walk over time? A country-level analysis

    Macroeconomic Dynamics, 2010, Cambridge University Press, 14(S1), 3-41

    Due to the dominance of absolute market efficiency, little is known about when, why and how stock market becomes efficient. This paper proposes a framework to measure the degree of market efficiency, and finds that emerging stock markets experience more frequent price deviations than developed markets, which can largely be attributed to low-income economies providing weak protection for private property rights. We argue that secure private property rights is a necessary and sufficient condition for ensuring stock prices move closer to a random walk. This is because informed arbitrageurs will not trade if they cannot keep their profits, leaving those markets dominated by sentiment-prone noise traders whose correlated trading causes stock prices to deviate from the random walk benchmarks for persistent periods of time.

    Our work complements Morck et al. (2000) who find that weak private property rights institution is responsible for the high degree of stock price synchronicity in emerging stock markets.

    Publication Details          WoS Citation        Google Citation

  • Nonlinear serial dependence and the weak-form efficiency of Asian emerging stock markets

    Nonlinear serial dependence and the weak-form efficiency of Asian emerging stock markets

    Journal of International Financial Markets, Institutions and Money, 2008, Elsevier, 18(5), 527-544

    This paper advocates the application of nonlinearity tests for weak-form efficiency studies given the possibility that returns series can be linearly uncorrelated but nonlinearly dependent. It is equally important to test the persistence of nonlinear predictability by means of sub-samples or time-varying parameter model because its presence could be localized in time.  Using data from 10 Asian stock markets, we find that all return series exhibit strong evidence of nonlinearity, but their appearance is episodic and transient in nature.

    We further extend the empirical literature by conducting additional analyses to address new research questions: (1) what are the factors that  might account for the cross-country differences in relative efficiency? (2) Are major economic and political events responsible for the transient burst of nonlinear dependence? (3) Do market states play a role in generating the detected nonlinear dependence? (4) Is it possible to predict when the nonlinear dependence would occur? Our framework permits researchers to move beyond the traditional focus of testing absolute market efficiency.

    Publication Details         Google Citation

  • Financial crisis and stock market efficiency: Empirical evidence from Asian countries

    Financial crisis and stock market efficiency: Empirical evidence from Asian countries

    International Review of Financial Analysis, 2008, Elsevier, 17(3), 571-591

    This paper utilizes the framework proposed by Lim (2007, Physica A) to empirically assess the effects of the 1997 financial crisis on the efficiency of eight Asian stock markets. Applying the bicorrelation test in rolling windows, we are able to track the evolution of market efficiency over the sample period from 2 January 1992 to 31 December 2005, and observe graphically there is significant deviation from efficiency during crisis for all markets. By comparing the total number of rolling windows with significant nonlinearity over the three sub-periods of pre-crisis, crisis and post-crisis, we are able to gauge not only the relative efficiency of these Asian markets during each sub-period, but also to compare the efficiency of each stock market across the three sub-periods. Empirically, our finding of higher inefficiency during the crisis are not surprising as in that chaotic financial environment, investors would overreact not only to local news, but also to news originating in the other markets, especially when the news events were adverse. Thus, we argue that pursuing credible policy actions to calm the markets and restore investor confidence should be the priority for crisis management.

    This paper has been in the Top 25 Hottest Articles for 35 consecutive quarters!

    Publication Details         Google Citation

  • Ranking of efficiency for stock markets: A nonlinear perspective

    Ranking of efficiency for stock markets: A nonlinear perspective

    Physica A: Statistical Mechanics and Its Applications, 2007, Elsevier, 376, 445-454

    This paper extends the nonlinearity literature to show that the stylized fact of nonlinear serial dependence in stock returns is episodic and transient, implying the degree of return predictability varies continuously over time and thus market efficiency is not a static characteristic as widely assumed. We advocate applying nonlinearity tests in rolling sample approach because the latter enables researchers not only to track the evolving nature of market efficiency, but also to rank the relative efficiency of stock markets.

    Publication Details          WoS Citation        Google Citation

News from KP

  • 12 April 2016

    12 April 2016

    My paper published in NAJEF (Volume 36) as the lead article.

    Kian-Ping Lim, Chee-Wooi Hooy, Kwok-Boon Chang & Robert Brooks (2016) Foreign investors and stock price efficiency: Thresholds, underlying channels and investor heterogeneity. North American Journal of Economics and Finance, 36, 1-28.

  • 10 June 2016

    10 June 2016

    Volume 56(1) of MJES has been published, the first issue I serve as Managing Editor.

Monthly Aggregate Liquidity for Bursa Malaysia

My research team has constructed two monthly aggregate liquidity indicators for Bursa Malaysia. Details will be released when the paper is published.

liquidity1
liquidity2