Ranking the market efficiency of the Philippine stock exchange industry sectors using the multifractal detrended fluctuation analysis

Abstract

Abstract In this study, the market efficiency of the Philippine stock exchange industry sectors was ranked through the multifractal detrended fluctuation analysis wherein the generalized Hurst exponents for each sector were obtained. The difference between the minimum and maximum generalized Hurst exponents for each sector was used to measure market efficiency. For detrending polynomials of degree one, the following efficiency ranking was obtained, from most efficient to least efficient: properties, mining and oil, holding firms, industrial, finance and services. The results imply that since the services sector was found to be the least efficient sector, then investors do not react quickly to information entering the market, thus reflecting on the sector’s index. Conversely, the results also imply that the properties sector is the most efficient industry in the Philippine stock exchange. The multifractal detrended fluctuation analysis was also conducted for quadratic and cubic detrending polynomials, and different efficiency rankings were obtained, it was found that services and properties were still the most inefficient and efficient sectors, respectively. This study has provided additional evidence on the link between multifractality and market efficiency, and it has also been found that such a link still exists when considering industries under a country’s stock exchange.