Abstract
Efficient market hypothesis (EMH) states that financial markets are “informationally efficient”, implying that current prices fully reflect all available information. The present study aims at testing the weak form of market efficiency of the individual stocks listed on the Bahrain Bourse for the period 2011 to 2015. Weak form of EMH is tested using the Kolmogorov-Smirnov goodness of fit test, run test and autocorrelation test. The K-S test result concludes that in general the stock price movement does not follow random walk. The results of the runs test reveals that share prices of seven companies do not follow random walk. Autocorrelation tests reveal that share prices exhibit low to moderate correlation varying from negative to positive values. As the study shows mixed results, it is difficult to conclude the weak form of efficiency of Bahrain Bourse.
Highlights
Efficient market hypothesis (EMH) states that financial markets are “informationally efficient”, implying that current prices fully reflect all available information
The present study aims to test the weak form of efficiency of the individual stock listed on Bahrain Bourse for the period 2011 to 2015
Run test shows that the successive price changes are not random (Elango & Hussein, 2007)
Summary
Efficient market hypothesis (EMH) states that financial markets are “informationally efficient”, implying that current prices fully reflect all available information. According to Fama (1970), there are three forms of EMH. Weak form states that prices already reflect all past publicly available information. Semi-strong EMH states that price changes reflect past information, as well as reflect new public information. Strong EMH claims that prices instantly reflect even hidden or “insider” information
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