Lack of Reform Effect on Exchange Efficiency- Empirical Evidence from Saudi Market Index –

Mohammed Alhomaidy

doi:10.5296/rae.v12i4.18625

Abstract

As development of financial markets has been a growing issue after the financial crisis 2008, this paper has tested efficiency on one of the largest emerging securities markets in the world. It examines lack of reform impact on efficiency of Saudi stock exchange (TASI index) employing random walk hypothesis (RWH) through a battery of parametric and nonparametric tests including autocorrelations, unit root, variance ratio (VR) and Brock, Dechert, and Scheinkman (BDS) test.The study specifically aims to test weak form efficiency before and after massive efforts implemented to reform Saudi exchange. Findings have concluded in a consensus verdict that there is no change observed in TASI index behaviour, and hence it rejected to be a weak-form efficient market. Thus, policy makers and regulators should initiate further reforms; deep regulations and reorganization development to address inefficiency.

Highlights

Saudi Stocks Exchange has come across an extreme refurbishing and reform aiming for an entire regulatory environment switching it from a primary market to an instituted stock exchange
Estimation and Results: Testing Tadawul All Share Index (TASI) index by variance ratio (VR), the focus is on the heteroscedastic diagnosis as the sample is based on series return of daily closing prices which is most likely to be of heteroscedastic property test
Under the assumption of heteroscedasticity before reform period, results imply that we reject the null hypothesis of random walk for every interval provided in the test

Summary

Introduction

Saudi Stocks Exchange has come across an extreme refurbishing and reform aiming for an entire regulatory environment switching it from a primary market to an instituted stock exchange. Since 2007, huge institutional, constitutional, and regulatory transformation implementations have been put in action, e.g., establishing specialized bodies, issuing policies, and introducing technologies, in addition determine trading and supervision duties. This dramatic change increases the importance to examine the effect considered by reorganizing Saudi stocks market which ought to be emphatically affected by such vast regulatory reform and restructuring, and supposedly guaranteed remarkable development of such stocks market. Restructuring process and regulatory enhancements endeavored over 15 year ago are presumed to be empirically reflected in Saudi stock market efficiency

Methods

Results

Conclusion