TESTS OF MARKET EFFICIENCY IN THE STOCK EXCHANGE OF THAILAND IN THE PERSPECTIVE OF US MONETARY POLICY ANNOUNCEMENTS
Keywords:
Market efficiency, the Stock Exchange of Thailand (SET), U.S. Monetary PolicyAbstract
The objective of this paper is to test the semi-strong-form market efficiency of the Stock Exchange of Thailand (SET) with respect to the U.S. Monetary Policy Announcements. It focuses on how quickly and properly the SET index responds to the U.S. Federal Funds Target rate. This paper introduces the research methodology that mitigates two main problems normally occurring in testing market efficiency of emerging stock markets. They are the problem of information leakage before the official announcement and the problem of joint hypothesis testing arising from the instability of pricing – equilibrium model. The study finds that semi-strong-form market efficiency does exist in the Stock Exchange of Thailand. More precisely, the SET index reacts to the announcement of U.S. Federal Funds Target rate rapidly, properly and without systematic delay. The anticipated increase or decrease in Federal Funds Target rate has no significant impact on the SET index, while , on average, the unanticipated 100-basis-point decrease (increase) in Federal Funds Target rates is associated with 1.83% increase (decrease) in the security prices in the Stock Exchange of Thailand. These findings suggest that full, timely and accurate disclosure of information with strong regulatory enforcement is a crucial factor for improving market efficiency in the Stock Exchange of Thailand.
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