Structural Breaks, Efficiency, and Volatility: An Empirical Investigation of Southeast Asian Frontier Markets

This study investigates stock price behavior of the Southeast Asian (SEA) frontier markets of Vietnam, Laos, and Cambodia. To do so, we are testing stock market efficiency of these markets, and especially the extent to which stock prices follow a random walk. The contribution of this paper is therefore twofold. First, from an academic perspective, it complements prior evidence on the issue of informational efficiency for these markets using out-of-sample data, especially covering the period following the 2007–09 global financial cri-sis. Second, from a professional investment viewpoint, assessing the level of stock market efficiency of these countries allows better understanding of their economies and of the soundness of their financial systems, as in the presence of market efficiency stock market prices should accurately reflect companies’ actual performance. Furthermore, the understanding of how securities markets perform allows relevant governments to adopt appropriate policies to stimulate growth and capital investments, leading to the improvement of the country’s economic environment. In brief, using alternative testing procedures, our results suggest that all three markets under examination are currently weak-form inefficient. Further-more, the degree of informational inefficiency (or not) varies on the basis of the methodology adopted and the frequency of the examined stock return series. For example, although all markets appear to be influenced by long memory dynamics and symmetric volatility, testing for randomness in the return series indicate a marginal degree of efficiency in the case of the newer stock markets of Cambodia and Laos.