Predictable or Random?-A Test of the Weak-Form Efficient Market Hypothesis on the Ghana Stock Exchange

Abstract

The study examines the predictability of index returns on the Ghana stock market within the framework of the weak-form efficient market hypothesis using historical daily, weekly, monthly, and quarterly returns for a period of 28 years (1990-2017). The descriptive statistics reveal huge disparity between the mean and standard deviation, a phenomenon that suggests that the stock market is highly risky. In the same vein, the return series were also found to be positively skewed with leptokurtic kurtosis. The Jarque-Bera statistics showed a non-normality of return distribution. The random walk hypothesis (RWH) was tested using four robust statistical tests, namely the Ljung-Box autocorrelation test, unit root tests, the runs test, and variance ratio tests (such as Wright’s rank and sign and Lo-Mac Kinlay). The empirical results showed that all four tests rejected the random walk hypothesis required by the weak-form efficient market hypothesis in all four return series. This provides empirical basis to infer that the GSE is inefficient at weak-form. The rejection of the RWH on a daily, weekly, monthly, and quarterly basis is possibly an indication that the weak-form inefficient characteristic of the GSE is not sensitive to return frequency.