Efficiency of Emerging Financial Markets in the Pre and Post Economic Crisis Era: A Case from the Models of the Ghanaian Stock Exchange

Abstract

The study of stock market efficiency has been the objective of many finance researches across the globe since the last few decades. That notwithstanding, the evidence is mixed on whether the stock markets are efficient or not. While some studies conclude that the stock markets are efficient, other studies cast doubt on this conclusion. The Ghana stock exchange, is the only stock market in Ghana, and since its inception in 1989, it has witnessed radical transformation owing to the judicious policy measures implemented through the financial sector reforms. At this transformational stage of development, it is very important to assess the level of efficiency of the Ghanaian equity market in order to establish its long-term role in the process of economic development. This paper considers an overall trading period from 1989 to 2010, which is further divided into pre-crisis (1997-2001) and post-crisis (2002-2007) periods. The paper employed autocorrelation function tests (ACF) and run-test to draw a more concise conclusion about the efficient financial markets in emerging economies. The results of this research demonstrates that there exist an autocorrelation on the Ghanaian stock market which makes stock returns very predictable and hence the inefficiency of the Ghanaian stock market. The study recommends that Ghanaian financial policies especially those concerning liberalization, deregulation and privatization be revised and implemented with careful supervision to clear most of the financial and institutional imperfections in order to provide a fair play grounds for all players in the Ghanaian equity market.