One of the difficulties that I face in UMS is when asking students to do research-oriented project paper. The main obstacle is data accessibility, because our library doesn’t subscribe to key economic and financial databases. Luckily, the courses that I taught at the moment are quantitative-based or in the area of economics. The free database that I recommended to my students is the one provided by World Bank, in particularly World Development Indicators (click here).
Dataset for Financial Development
In my earlier posting, I recommended the website of Yongfu Huang which contains excellent resources for research on financial development (click here). Currently, my undergraduate students are doing their project paper, and some of them work on topics related to financial development. For those who are looking for data on financial development, this is the permanent link at World Bank (click here). This database includes a range of indicators that measure the size, activity, and efficiency of financial intermediaries and markets. As of this post, the database has been updated through 2010.
Stock Market Liberalization II
In my previous posting (click here), I provided an overview of the stock market liberalization indicators in the existing literature. This post will share some slides that provide a systematic literature review on the subject matter.
Before you download (click here), there are some short remarks:
- These slides are extracted from my 2012 lecture at Labuan School of International Business and Finance for the course “Current Issues in International Financial Economics”
- The objective is to share with researchers the existing indicators that can be used when studying the effects of stock market liberalization.
- The structure of this literature review has been used by my postgraduate student (Chang Kwok Boon) in his Master Thesis “Foreign Ownership and the Informational Efficiency of Malaysian Stocks”, and also papers to be extracted from the thesis.
‘Noise’ Researchers
In 1986, Fischer Black delivered his presidential address to the American Finance Association, with an elegant title “Noise” (click here to see the published version in Journal of Finance). This seminal paper by Black (1986) formally identifies noise traders as traders who “trade on noise as if it were information”. His address is path breaking because classical financial theories always assume that investors only react to new fundamental information. My 2010 paper in Macroeconomic Dynamics conjectures that the weak private property rights protection in low-income economies deters the participation of informed arbitrageurs, leaving these emerging markets dominated by sentiment-prone noise traders.
In this post, I want to share a unique environment in the local academia. Noise researchers here are not referring to researchers who specialize in the area of noise. Instead, the term refers to those researchers (just like investors) who write (trade) based on noise, rather than genuine interest/curiosity/passion (fundamental information).
What are the noises that I refer to? Examples from my personal and colleagues’ observations are:
- When a researcher always write solo papers, he will hear noises saying that this is a selfish act and he is not contributing to mentoring;
- When a researcher always write joint papers, the noises accuse him of leveraging on others;
- When a researcher is the third and last author, he is accused of playing a minor role and even to the extent of being labeled as free-rider;
- When a researcher is first author, the noises will still be around because he is not the corresponding author;
- When a researcher works exclusively on a niche area, he is accused of not practicing the golden rule of diversification (too specialize!);
- When a researcher publishes on different areas, the noise-makers then raise the issue of him not having an area of expertise;
The list will go on, depending on the weak spots that the noise-makers are able to identify in one’s CV. I sympathize with those early career researchers (ECR) who sometimes were affected by these noises. They were perplexed. In certain cases, they gave up writing.
In the case of noise trading, the recommended policies are generally directed at noise traders. However, in the present context, noise researchers are innocent. Those noise-makers are adding unnecessary pollutants to the already not so conducive local research environment, as compared to universities in advanced nations.
I would urge those noise-makers: If you cannot contribute significantly to academia, let the informed researchers do it! Without your noises, noise researchers will naturally die off. Without your noises, research will be driven by genuine interest/curiosity/passion. Without your noises, Malaysia will be able to retain and attract more talented researchers.
Statistical Tests for Weak-Form Market Efficiency
Over the years, I received numerous email enquiries on topics related to market efficiency. My survey article in Journal of Economic Surveys provides a useful guide, as the paper reviews all the statistical tests for weak-form market efficiency.
If readers ask me which tools I would recommend, the variance ratio tests come first. This is because the existence of return autocorrelations has strong theoretical justifications, especially in the context of market reactions (or mis-reactions) to information. Moreover, the market efficiency literature has shifted from testing absolute efficiency to measuring relative efficiency. The latter objective can be achieved by using absolute variance ratio minus one.
The survey article by Charles and Darne (2009) provides an extensive review of the existing variance ratio tests. Jae Kim (my PhD supervisor) generously shares the R-codes for a battery of efficiency tests (click here). Among all the available statistical tests, my recommendation would be the wild bootstrap automatic variance ratio (WBAVR) test proposed by Kim (2009). The greatest appeal of this test is that the optimal value of lag order or holding period is selected automatically using a data-driven selection rule. Moreover, Monte Carlo simulations (see also Charles et al., 2011) show that the test possesses good small sample properties, and is robust to conditional heteroskedasticity that typically characterizes most financial time series. Applications of the WBAVR test include Kim et al. (2011), Lim and Kim (2011), Charles et al. (2012) and Lim et al. (2013).
If readers are bothered by the possible existence of nonlinear serial dependence in the returns series, I would then recommend the generalized spectral martingale test proposed by Escanciano and Velasco (2006). The selling point of this test can be found in my recent article in Applied Economics Letters.
Articles in Press (as of October 2012)
This page provides a quick access to my papers in press. They can be cited using the DOI provided by the publishers.
Annual Review of Financial Economics
This is a journal that I highly recommend to those interested in financial economics (click here). The editors are Andrew Lo and Robert Merton, both from Massachusetts Institute of Technology. Extracted from the journal website: “The Annual Review of Financial Economics provides comprehensive, forward-looking and critical reviews of the most significant theoretical, empirical, and experimental developments in financial economics, including the fields of capital markets, corporate finance, financial institutions, market microstructure, and behavioral and experimental finance”.
The journal requires subscription, but I came across one paper with free access (click here for download).
Adaptive Markets Hypothesis Appears in Malaysian Press
I was surprised and excited to learn that the AMH was featured in the Malaysian Press (The Star, click here or here). The AMH, proposed by Prof. Andrew Lo, was the subject of my PhD thesis. The key references can be found in my survey paper published in Journal of Economic Surveys.
My PhD Thesis
I started my PhD study at Monash University on 15 October 2005 after receiving a staff scholarship from Universiti Malaysia Sabah (UMS). My thesis, under the supervision of Professor Robert Brooks and Professor Jae Kim, addresses empirical issues related to the weak-form efficiency of stock markets.
I dedicated my thesis to the founding Dean of Labuan School of International Business and Finance (LSIBF), the late Dr. Zainal Abidin Said. He was a visionary leader who aspired to take the school to greater heights- to be known nationally and internationally.
Stock Market Liberalization
My postgraduate student, Chang Kwok Boon, has just submitted his Master thesis entitled “Foreign Ownership and the Informational Efficiency of Malaysian Stocks”. Among others, his Chapter 2 conducts an extensive survey of the existing indicators for stock market liberalization, with the ultimate objective of justifying the superiority of foreign ownership.
I hereby extract the summary that he provided in his thesis:
