Testing the weak-form efficiency of Arab stock markets after the COVID-19 pandemic

Abstract

Weak-form efficiency means that stock prices should reflect all historical information and follow a random walk. This study examines the effect of the COVID-19 pandemic on the stock market weak-form efficiency of Arab countries, namely, Jordan, Lebanon, Kuwait, Morocco, Oman, Palestine, Bahrain, Egypt, Iraq, Qatar, Saudi Arabia, the United Arab Emirates, Syria, Tunisia, and Sudan. Daily data from July 1st, 2021 to November 12th, 2022 (370 trading days) are used to cover the period after starting the pandemic. The variance ratio and the runs test are used to test return predictability. The results show that the variance ratio values of Boursa Kuwait, the Egyptian Exchange, Tadawul, and the Amman Stock Exchange are statistically significant, indicating that their returns are unpredictable. In specific, the indices of these stock markets follow a random walk, and their price changes are independent. This is evidence that these stock markets are efficient at a weak level. In contrast, the insignificant values of the variance ratio indicate that returns are predictable in other Arab stock exchanges after the pandemic era. The findings of the Egyptian Exchange, Tadawul, and the Amman Stock Exchange are confirmed using the run test of weak-form efficiency. It reveals that the indices of these stock exchanges follow a random walk, while the indices of other Arab stock markets do not.