Kian-Ping Lim is a Senior Lecturer at the Faculty of Economics and Administration, University of Malaya, Malaysia. He holds a B.B.A. (Hons.) from Universiti Kebangsaan Malaysia and a M.Sc. (Financial Economics) from Universiti Putra Malaysia. His PhD research (Oct 2005-Sept 2009, Department of Econometrics and Business Statistics, Monash University), under the supervision of Prof. Robert Brooks and Prof. Paul Jae Kim, explores three empirical issues on the information efficiency of stock markets- nonlinearity, relative efficiency and evolving efficiency. A comprehensive review of this emerging strand of research is summarized in his 2011 JES paper.

Despite not having a first degree in economics, his research is largely published in mainstream economics and finance journals. Among them are Applied Economics Series (Applied EconomicsApplied Financial EconomicsApplied Economics Letters and Applied Financial Economics Letters, 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), North American Journal of Economics & Finance (Elsevier), Research in International Business & Finance (Elsevier) and Singapore Economic Review (World Scientific).

Currently, he is the Managing Editor for Malaysian Journal of Economic Studies (flagship publication of the Malaysian Economic Association), and associate editor for Capital Markets Review (flagship publication of the Malaysian Finance Association) and International Journal of Economics & Management. In terms of administration, he serves as the Deputy Dean (Research & Development) at the Faculty of Economics & Administration, University of Malaya (Aug 2016-).

Click here for his 2013 featured bio!

Representative Publications

Foreign equity flows: Boon or bane to the liquidity of Malaysian stock market

Journal Article
Ping-Xin Liew, Kian-Ping Lim and Kim-Leng Goh
North American Journal of Economics and Finance, Elsevier, 45, 161-181
Publication year: 2018

This sequel continues to scrutinize the role of foreign investors in Bursa Malaysia, shifting the focus to macro-level analysis that has direct policy implications. We construct weekly market liquidity measures by aggregating firm-level estimates using value-weighting scheme, with the selected closing percent quoted spread proven by Fong et al. (2017) to be the best proxy for Malaysian stocks. Our paper is also the first to utilize the “Trading Participation by Category of Investors” database assembled by Bursa Malaysia.

With these unique data, we undertake the first empirical analysis to determine the impact of foreign equity flows on aggregate liquidity of the Malaysian stock market. The research addresses the prevailing public anxiety on the recent massive withdrawals of foreign portfolio investment from the country. Our findings show that foreign investors act as informed traders who reduce aggregate liquidity of the local bourse. There is evidence that the gross inflows of foreign institutions destabilize the local stock market through their adverse impact on aggregate liquidity, confirming the negative press reports on foreign investors during periods of volatile foreign equity flows. However, liquidity condition in Bursa Malaysia remains resilient when foreign investors flee the market as there is ample liquidity provision from local government-backed institutions to cushion the negative impact arising from such capital flight, thus protecting the local market from liquidity dry-up.

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

Journal Article
Kian-Ping Lim, Chee-Wooi Hooy, Kwok-Boon Chang and Robert Brooks
North American Journal of Economics and Finance, Elsevier, 36, 1-28 [Lead Article]
Publication year: 2016

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).

WoS Citation      Google Citation

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

Journal Article
Kian-Ping Lim, Weiwei Luo and Jae H. Kim
Applied Economics, Taylor and Francis, 45(8), 953-962
Publication year: 2013

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!

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

Journal Article
Kian-Ping Lim and Weiwei Luo
Applied Economics Letters, Taylor and Francis, 19(10), 905-908
Publication year: 2012

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.

WoS Citation          Google Citation

Trade openness and the informational efficiency of emerging stock markets

Journal Article
Kian-Ping Lim and Jae H. Kim
Economic Modelling, Elsevier, 28(5), 2228-2238
Publication year: 2011

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).

WoS Citation        Google Citation

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

Journal Article
Kian-Ping Lim and Robert D. Brooks
Journal of Economic Surveys, Wiley-Blackwell, 25(1), 69-108
Publication year: 2011

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).

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

Journal Article
Jae H. Kim, Abul Shamsuddin and Kian-Ping Lim
Journal of Empirical Finance, Elsevier, 18(5), 868- 879
Publication year: 2011

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.

WoS Citation        Google Citation

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

Journal Article
Kian-Ping Lim and Robert D. Brooks
Macroeconomic Dynamics, Cambridge University Press, 14(S1), 3-41 [Lead Article]
Publication year: 2010

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.

WoS Citation        Google Citation

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

Journal Article
Kian-Ping Lim, Robert D. Brooks and Melvin J. Hinich
Journal of International Financial Markets, Institutions and Money, Elsevier, 18(5), 527-544
Publication year: 2008

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 suggests moving beyond testing absolute market efficiency to exploring its determinants, preceding the cross-country work of Griffin et al. (2010), Lim et al. (2010) and Jain and Xue (2017).

Google Citation

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

Journal Article
Kian-Ping Lim, Robert D. Brooks and Jae H. Kim
International Review of Financial Analysis, Elsevier, 17(3), 571-591
Publication year: 2008

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!

Google Citation

Ranking of efficiency for stock markets: A nonlinear perspective

Journal Article
Kian-Ping Lim
Physica A: Statistical Mechanics and Its Applications, Elsevier, 376, 445-454
Publication year: 2007

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.

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