Investigating the efficiency of East Asian stock markets through booms and busts

• Asian stock market data is multifractal in nature.
• Asian markets tend to show better efficiency in booms as compared to recessions.
• The volatility for all investors tends to be lower in every succeeding boom.
• Long term volatility impacts the long term efficiency significantly.

The Efficient Market Hypothesis has been the subject of considerable debate over the past several decades with a recent surge in interest in East Asian markets. This study investigates the East Asian economies, which have experienced massive capital inflows, inviting the question of whether these markets are efficient enough for further investment and development. We endeavour to assess the volatility and business cycle phases, providing a unique aspect in weak form efficiency studies. We focus on Malaysia, Indonesia, Singapore and South Korea due to their economic and financial development. Using Multifractal Detrended Fluctuation Analysis to study efficiency, we determine first that overall efficiency has improved over the past two decades and second that markets are more efficient in growth phases in comparison to their preceding decline. Our results concur with those reported in the mainstream literature.