Examining the Market Efficiency of the Thai Stock Market : SUE, P/E and B/M Anomalies Models

Abstract

      This research is conducted in order to explore the market efficient hypothesis in the Thai stock market, specifically, whether the Thai stock market is an efficient market or not. Using single accounting variable method, the relationships between single accounting variable and stock return have been examined. If accounting variable has a significant predictive power in explaining future stock returns, then the conclusion which is the Thai stock market is not an efficient market in semi-strong form can be made. In order to achieve the research objectives, three models incorporate single accounting variable are constructed. These models include the Standardized Unexpected Earnings (SUE), the Price-Earnings (P/E) and the Book-to-Market (B/M). The research findings are expected to make the contribution regarding an alternative methodology in examining the market efficiency in the Thai context. The appropriate investment strategies under particular the Thai stock market efficient conditions are also expected to be the significant contribution of the study. Simple regression is incorporated in order to examine the relationships between single accounting variable in current period and the future stock return. The accounting data including SUE, P/E and B/M in 1992-2000 are derived from the Stock Exchange of Thailand Database. The results show that there are no significant relationships between accounting variables which are SUE, P/E and B/M and stock returns.  These results insist the conclusion that the Thai stock market is efficient market in semi-strong form which implies that investors can not employ the accounting variables to predict the future stock price in order to gain the surplus profit from the Stock Exchange of Thailand. These findings are consistent to the previous studies (Tirapat and Penpas, 1998; Meredith and Sektrakul, 2002; Sektrakul, 2003) in the Thai context relating efficient market exploration.