Efficiency of the ASEAN-5 Stock Markets: A Markov-Switching Model Estimation Using Adjusted Market Inefficiency Magnitude

The effectiveness of spreading stock market information in the ASEAN-5 financial stock markets including Thailand, Malaysia, the Philippines, Singapore, and Indonesia is examined in this study. For this investigation, we used the Adjusted Market Inefficiency Magnitude (AMIM) measure to determine market efficiency in terms of information distribution in different market states such as the lower and the higher fluctuating stock returns periods. Therefore, we extended the autoregressive model into Markov Switching Model to incorporate both the higher and lower regimes for stock market returns, then we calculated the AMIM value for each regime to confirm market efficiency for different market states. The empirical findings from AMIM based Markov Switching Model indicate that the stock markets of Thailand and Singapore are efficient in the lower volatile period only, showing that the stock information of both countries is well distributed during the comparatively lower stock-return fluctuating time. Moreover, the Philippines and Indonesia stock markets are efficient in the higher fluctuating regime, meaning that the market information properly spreads during high volatile period. In addition, Malaysia’s stock market is the only stock market in which the market information reveals the fact of the stocks performing very well in both lower and higher fluctuating markets, meaning that whatever the states of market the Malaysian stock market has, the Malaysian stock indexes reflect the information effectively.