Investigating the efficiency of financial markets: Empirical evidence from MENA countries

Izzeddien N Ananzeh

doi:10.21511/imfi.18(1).2021.21

Abstract

The market efficiency hypothesis has become an important concept for all investors looking to own internationally diversified portfolios, which coincides with an increase in investment flows between all countries, both developed and undeveloped. This study was aimed at investigating the efficiency of a group of Arab stock markets located in the Middle East and North Africa (MENA) region according to the Random Walk Hypotheses (RWH) at weak form. The study covered the markets of Jordan, Egypt, Saudi Arabia, UAE, Bahrain, and Oman.The empirical results of all tests used in this study rejected the RWH at a weak form for all markets through all tests applied – Unit root test, Variance Ratio Test, and Run Test. The result of this study contradicts the results of many studies conducted on developed and emerging markets. This can be a good indication of the ineffectiveness of the reforms that have been adopted by responsible bodies on these markets.Based on this result, all efforts made to expand and deepen these markets should be intensified by improving liquidity, transparency, enhancing investment culture in these countries; supporting legislative and regulatory reforms to attract investment, and developing the financial sector in these markets as a whole. AcknowledgmentThis paper is supported by the Deanship of Scientific Research and Graduate Studies at Philadelphia University in Jordan.

Highlights

Financial markets play a central role in any economy as they represent a point of contact between individuals and institutions, mobilizing savings and transforming them into investments that contribute to a country’s economic development and provide a solid base for the national economy
The empirical results of all tests used in this study rejected the Random Walk Hypotheses (RWH) at a weak form for all markets through all tests applied – Unit root test, Variance Ratio Test, and Run Test
The market efficiency hypothesis emerged as a result of the efforts of a large group of researchers to study the efficiency of financial markets

Summary

INTRODUCTION

Financial markets play a central role in any economy as they represent a point of contact between individuals and institutions, mobilizing savings and transforming them into investments that contribute to a country’s economic development and provide a solid base for the national economy. The aim of this study is the American economist Fama To examine this to inspect the RWH for a group of countries that level of efficiency, he declared that changes in fall within the same region in the Middle East stock prices must be independent and identically and North Africa (MENA) markets from January distributed (IID). AND DISCUSSIONS (6) It is necessary to examine the efficiency of selected Arab Financial Markets (AFM) under study in a weak form, depending on the Random Walk Hypothesis (RWH). The returns series of Arab Stock markets’ indices do not In this study the variance ratio test is conductfollow the normal distribution according to the ed through two cases: heteroscedasticity and ho-.

Unit root tests pending on daily values of Arab Stock Market

Runs test

CONCLUSION AND RECOMMENDATIONS