Stock Market Equilibrium and Macroeconomic Fundamentals

A resurgence in interest about the role played by stock markets in economic development has stimulated a burgeoning literature of research on emerging markets. This paper examines the efficiency characteristics of the Stock Exchange of Singapore, one of the few developed stock markets in South East Asia. The paper employs a wide range of methods for testing stock market efficiency. It analyzes the weak form of efficiency tests, the semi-strong form of stock market efficiency tests, as well as the excess volatility test or the variance-bound tests. By and large, the econometric results in this paper establish that the Singapore stock market is both weakly and semi-strongly efficient in asset-pricing terms, although evidence suggests that the market may not be strongly efficient.. Granger causality tests based on the efficiency tests indicate that developments in the Singapore stock market appear to be systematically related to the overall economy and can thus serve as a leading indicator of its intertemporal behavior.