Abstract
Purpose:- This paper aims to investigate the Efficient Market Hypothesis (EMH) and validity of Random Walk Model (RWM) in KSE-100 index starting from 1992 till 2014 taking monthly averages of index. Methodology:- Main focus of the paper is to evaluate the efficiency in KSE-100 index with respect to application of Hurst Exponent and Rescaled Ranged Statistics. Although many researchers have previously explained the working of EMH in KSE-100 index but rarely anyone has explained it using Hurst Exponent Analysis on over all longest period since the establishment of KSE-100 index Feb, 1992 to Dec, 2014. Annual Rescaled Range Statistics are also calculated to explain the good or bad years according to Estimated Hurst Statistics. All statistical analysis has been performed on Gretl which gives the good grasp over Hurst Exponent Analysis. Results:- The results revealed that overall KSE-100 index is not following the random walk and is not performing efficiently, and yearly break up shows that market was persistent in few years but mostly it was antipersistent (long-run memory prevails). Practical Implication:- Implementing Hurst Exponent Analysis enabled us to get rigorous result about performance of the Pakistan stock market in terms of efficiency that implied chances of arbitrage opportunity prevail significantly.
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