Weak-form efficiency in Islamic equity markets: a multi-frequency analysis incorporating non-linearity and structural breaks

The efficient market hypothesis (EMH) states that security prices reflect all available information and investors cannot earn excess return by trading on the basis of this information. EMH is an important concept for the stockbrokers, financial institutions, individual and institutional investors and regulators government. An investment strategy of an investor is greatly influenced by market efficiency. Market efficiency also dictates the regulatory measures to be developed for ensuring the orderly development and management of the markets in a country. This study intends to contribute to the existing literature by investigating the weak-form market efficiency. The efficiency of the Indian stock market is tested by using the daily data of Bombay Stock Exchange (BSE)-200 index-based companies over the period of 1 January 1991 to 31 December 2012 by employing runs test, augmented Dickey–Fuller test (ADF) Test, Phillips–Perron test (PP) test, autocorrelation test and generalized autoregressive conditional heteroscedasticity (GARCH) (1, 1) model. The empirical results of these tests do not support the weak-form efficiency for the Indian stock market. Therefore, we conclude that the Indian stock market is not weak-form efficient. This result suggests that there is a systematic way to exploit the trading opportunities in the Indian stock market and the investors can earn abnormal profits by exploiting this opportunity. Since the results indicate that the market is not efficient in the weak form, the study of historical prices is beneficial for the investors. This also means that there is a scope for technical analysis as a trading strategy. The findings also open up scope for the market regulators to initiate measures to ensure market efficiency. There is an overwhelming literature supporting the weak-form market efficiency. We employ multiple tests to investigate the dependence structure of the historical prices to unravel the myth of market efficiency in the weak form.

Purpose- The purpose of this study is to assess the weak form efficiency of Borsa Istanbul banking sector stocks using bank stocks listed in BIST 30. In addition to individual banking sector stocks, BIST 100 and BIST BANKS indexes are also investigated. Methodology- For this purpose, weekly adjusted closing prices of selected stocks and indexes are collected from finance.yahoo.com and investing.com. The study period covers from January 4, 2010, to December 20, 2019. Therefore, a total of 520 observations for each stock and index are analyzed using autocorrelation, run test and unit root tests such as Augmented Dickey-Fuller (ADF), Phillips-Perron test (PP) and Kwiatkowski-Phillips Schmidt-Shin (KPSS). Findings- The autocorrelation test results indicated that only VAKBAN and YAKBNK are efficient at the weak form of efficiency during the study period. On the other hand, the runs test result showed that only AKBANK and GARAN do not follow the random walk hypothesis and the other six samples are efficient at the weak form of efficiency. Finally, the unit root tests such as ADF, PP and KPSS results indicated that all samples do not follow the random walk hypothesis and they are not efficient at the weak form of market efficiency. BIST 100 and BIST BANKS indexes are inefficient according to all methods except in run test analysis. Conclusion- Consequently, the three types of tests employed in this study exhibited a controversial result and it is difficult to give a general conclusion regarding the efficiency of the BIST Banking sector in the weak form. This indicated the probability of making an abnormal return by examining the Borsa Istanbul banking sector stocks’ historical prices.

The question of whether the stock market is efficient has been an ongoing debate among researchers. Generally, empirical evidence indicates that most conventional stock indices for developed countries are weak form efficient while inconclusive results are discovered for developing countries. With the growing importance of the Islamic capital markets that run parallel to the conventional stock markets, similar question arises as to whether these new Islamic capital markets are also efficient. Hence this paper aims to examine the weak form efficiency of the Islamic stock indices. Autocorrelation Function (ACF) test and Variance Ratio (VR) test are used to test the market efficiency of the Islamic stock indices from China, India, South Africa, Malaysia, Dubai, Qatar and Japan. The study uses daily data covering the year 2008 until 2012. In addition, this paper attempts to unveil the dynamic causal relationships among the Islamic capital markets. Bivariate Granger Causality test is employed to achieve the objectives. Interestingly only the Islamic stock indices for Malaysia and India are weak form efficient while the results of the Islamic stock indices for Qatar and Kuwait are not. The results of the other Islamic stock indices studied are inconclusive. Johansen multivariate cointegration tests reveal no long-term relationship among the Islamic stock indices. On the other hand, bivariate Granger Causality tests report short run co-movements between Islamic stock indices of Muslim countries and non-Muslim countries, an indication of growing interest of the Islamic financial markets among investors.

The question of whether the stock market is efficient has been an ongoing debate among researchers. Generally, empirical evidence indicates that most conventional stock indices for developed countries are weak form efficient while inconclusive results are discovered for developing countries. With the growing importance of the Islamic capital markets that run parallel to the conventional stock markets, similar question arises as to whether these new Islamic capital markets are also efficient. Hence this paper aims to examine the weak form efficiency of the Islamic stock indices. Autocorrelation Function (ACF) test and Variance Ratio (VR) test are used to test the market efficiency of the Islamic stock indices from China, India, South Africa, Malaysia, Dubai, Qatar and Japan. The study uses daily data covering the year 2008 until 2012. In addition, this paper attempts to unveil the dynamic causal relationships among the Islamic capital markets. Bivariate Granger Causality test is employed to achieve the objectives. Interestingly only the Islamic stock indices for Malaysia and India are weak form efficient while the results of the Islamic stock indices for Qatar and Kuwait are not. The results of the other Islamic stock indices studied are inconclusive. Johansen multivariate cointegration tests reveal no long-term relationship among the Islamic stock indices. On the other hand, bivariate Granger Causality tests report short run co-movements between Islamic stock indices of Muslim countries and non-Muslim countries, an indication of growing interest of the Islamic financial markets among investors.

According to the proposal of Kyoto protocol, carbon dioxide emission rights are traded as a commodity, and carbon emission trading market emerges as the times require. As the world’s largest carbon emitter, China has established eight pilot markets for carbon emission trading. Selecting the closing price of eight carbon trading markets from the establishment to June 23, 2020, this paper analyzes the daily, weekly, and monthly return series data, using the first-order autoregressive process to adjust the daily income series to eliminate the weak trading market effect and then comprehensively uses the traditional variance ratio test and multiple variance ratio test to analyze the weak-form market efficiency of the eight carbon trading markets. The empirical results show that most of the carbon trading markets are non-weak-form market efficiency, and only Tianjin, Shanghai, and Hubei markets are weak-form market efficiency under the daily trading data. However, with the increase of carbon holding period, the weak-form market efficiency continues to strengthen. It shows that liquidity, quantity, and information transparency are important factors that affect the market efficiency.

Wavelet decomposition of the signal-averaged electrocardiogram has been proposed as a method of detecting small and transient irregularities hidden within the QRS complex and of overcoming some of the limitations of time domain analysis of the signal-averaged electrocardiogram. This study evaluated the potential utility of wavelet decomposition analysis in the risk stratification of patients with idiopathic dilated cardiomyopathy. Both wavelet decomposition and time domain analysis were applied to the signal-averaged electrocardiogram recordings of 82 patients with idiopathic dilated cardiomyopathy (mean age 43 +/- 14 years, 60 men) and 72 normal controls (mean age 44 +/- 15 years, 48 men). Three conventional time domain indices and four wavelet decomposition analysis parameters (QRS length, maximum count, surface area, and relative length) were derived from each recording using a Del Mar CEWS system and an in-house software package, respectively. The results showed that (1) more patients with idiopathic dilated cardiomyopathy than without had late potentials, and that the filtered QRS duration was significantly longer in patients than in controls (P<0.001). Similarly, abnormal wavelet decomposition analysis was more common in patients and wavelet decomposition measurements were significantly different between patients and controls (P<0.01); (2) conventional time domain analysis did not distinguish between clinically stable patients and patients who developed progressive heart failure, or between patients with and without arrhythmic events; (3) wavelet decomposition analysis identified patients who went on to develop progressive heart failure but failed to distinguish patients with arrhythmic events from those without; (4) survival analyses of a mean follow-up of 23 months showed that patients with late potentials tended to develop progressive heart failure more frequently than others (P=0.06). Patients with an abnormal wavelet decomposition result more frequently developed progressive heart failure than those with a normal wavelet decomposition result (P=0.027); (5) in a univariate analysis (Cox model), wavelet decomposition measurements but not time domain indices significantly correlated with the development of progressive heart failure (P=0.01). Multivariate analysis showed that only left ventricular end-diastolic dimension and peak oxygen consumption during exercise remained significant predictors of progressive heart failure. Wavelet decomposition analysis of the signal-averaged electrocardiogram is superior to conventional time domain analysis for identifying patients with idiopathic dilated cardiomyopathy at increased risk of clinical deterioration. Wavelet decomposition analysis, however, is unlikely to prospectively distinguish patients at a high risk of arrhythmic events in idiopathic dilated cardiomyopathy in its present form.

Efficiency of financial markets is one of the key elements indicating the performance of financial markets and the economy. In efficient markets, all transactions are done with the help of new information available about the economy, industries, and companies. Stock price movements are completely random, and are highly based on current information. The historical sequence of the prices will not provide any platform/base for the future. There might be no use of studying historical data of price changes to gain abnormal returns. The main aim of the present study was to investigate the behavior of the daily stock returns in five Asian countries, namely India, South Korea, Singapore, Hong Kong, and Japan. We employed both parametric and non-parametric tests to check the RWH (random walk hypothesis) to know the weak form of efficiency in the Asian stock markets. A common data set for all countries covering the time period from July 1997 to November 2013 was considered for the study. The results provided reasonable evidence to prove the existence of weak form of market efficiency in the selected Asian stock markets.

Indian Stock Markets (BSE - NSE) are considered to be one of the most dynamic and emerging stocks market in the world. This piece of empirical work finds evidence on Market Efficiency precisely Weak Form of Market Efficiency and Behavioural Finance. The study uses a Dickey Fuller and Augmented Dickey Fuller model of Random walk to explain S&P CNX Nifty 50 is Weak Form Efficiency on daily basis from 1995 to 2010. Further, the Behavioural Finance section shows evidence on Weak Form Efficiency because of the existence of biases like Momentum Profits and Contrarian Profits. The results for the above mentioned biases are contradictory with the previous researches taken into consideration, i.e. Joshipura (2009) or Jegadeesh and Titman (1993). Finally, the interpretation for Momentum Profits and Contrarian Profits were explained with certain limited assumptions, explanations and news.

The aim of this study, to compare return predictability in other words, the weak form of market efficiency of different sectors in Turkey. For this purpose, analyses were carried out by automatic portmanteau test with a 2-year sub-sample size using the daily data between 19.04.2000-07.02.2020 of 19 primary sector indexes within Borsa Istanbul. As a result of the analyses, it was understood that Transportation, Insurance, Electricity, and Metal Products Machinery sectors have higher return predictability periods and therefore their weak form market efficiency is lower than other sectors. In addition, it was determined that the sectors that have the least predictable periods of return, in other words, that have more weak form efficiency than other sectors, are Food Beverage, Banks, Wholesale and Retail Trade, and Wood Paper Printing.

Purpose &#8211; This study attempts to establish if the markets for the two most popular cryptocurrencies in the world, Bitcoin and Ethereum, follow weak-form market efficiency across various landmarks in time. Design/Methodology/Approach &#8211; Traditional testing for establishing weak-form market efficiency rests on whether the price series exhibits a random walk process, which implies that future prices cannot be predicted. However, not all random walk series automatically imply weak-form market efficiency, since some asset price behaviors may exhibit non-constant variance. In such cases, the GARCH model can be used to test for the presence of market efficiency. Since structural breaks in the prices of both cryptocurrencies are common, tests for market efficiency were carried out using sub-temporal price windows. In both price series, the last time window coincided with the 2020 COVID-19 pandemic period. Findings &#8211; Results of the GARCH analyses showed that the volatility and persistence parameters (α and β, respectively) in the Bitcoin and Ethereum models were all statistically significant, implying that prices in their sub-temporal markets were generally weak-form inefficient. The observed market inefficiency in both cryptocurrencies can be attributed to various factors like the price manipulation of crypto whales, security issues, and increased media attention, which led to inflows of information that helped big investors beat and gain from the market by successfully predicting the trend in future prices. During the 2020 COVID-19 pandemic period, both cryptocurrencies’ prices were observed to rise significantly, similar to the case of the 2017 Bitcoin price bubble. A cointegrating regression between Bitcoin and Ethereum prices during this period, however, showed a spurious relationship. Despite the absence of a long run relationship between these two price series, the current price bubbles in the cryptocurrency markets are speculated to be tied together. Research Implications &#8211; Players in the cryptocurrency market must always be cautious in making investment decisions regarding this type of asset since the markets are generally price inefficient and risky; any idiosyncratic decision that may be triggered by a price bubble burst in one cryptocurrency market may or may not serve as a signal that the other market will do the same. Since the Bitcoin and Ethereum prices were shown to exhibit volatility spillover and persistence, investors can use this information to make informed decisions as to whether to invest in these cryptocurrencies despite the huge risks that are magnified during the COVID-19 pandemic.

Second-tier stock market efficiency and dynamic impacts on macroeconomic development: evidence from tropical economies

Foreign exchange market is said to be efficient if all available information are reflected in its exchange rates. An efficient foreign exchange translates to absence of profitable and exploitable trends which means that it is impossible for market participants or private agents to outperform the market. This study investigated the weak and semi-strong form efficiency of Nigerian and South African foreign exchange market to determine the significance of past exchange rates in predicting the present rate which is the test of weak form efficiency and it examined the co-integration relationships between selected pairs of exchange rate to determine the semi-strong efficiency. The secondary data used in this study were sourced mainly from the Central Bank of Nigeria Statistical Bulletin, the South African Reserve Bank Bulletin and the oanda exchange rate websites. The data used were the inter-bank spot exchange rates of Naira and Rand to Swiss Franc, Euro, Pounds, Dollar and Yen for the period of January 2010 to December 2017. The Augmented Dickey Fuller (ADF) test and the Phillip Peron (PP) test were employed to determine the weak form efficiency while the Variance Decomposition, Granger Causality and Co-integration tests were used to determine the semi-strong form efficiency of both countries. The results of the study revealed that the Nigerian foreign exchange market is efficient in the weak and semi-strong form at 5% level of significance while the weak form efficiency of South African foreign exchange market revealed mixed results. The market is efficient in the weak form except for the case of Rand to Dollar and Rand to Yen which showed inefficiency. The market is equally efficient in semi-strong form. The study concluded that market participants cannot make exploitable profits by trading in both markets because all past and publicly available information are already incorporated in the prices of exchange rates. It was therefore recommended that the inter-bank market in both countries should be well monitored and managed by the regulatory authorities so as to promote the effective and efficient smooth functioning of the foreign exchange market as well as achieving a stable and realistic exchange rates.

This study appreciates the importance of having a better understanding of the market efficiency when trading an Exchange Traded Fund of any given set of securities in an exchange market as it is extremely vital for any prospective investor who may be looking to make sound investment decisions as well as market trend predictions. When trading in a market with few traders who likes dominating the market through insider trading, it is more likely to experience securities exchange market without confidence of investors thus depicting weak form of efficient market efficiency. While testing of the weak form of efficient market hypothesis (EMH) of the Nairobi stock exchange (NSE) is done through daily as well as weekly index data from NSE 20 share index over the three months period. The research study applies the use of secondary data that was obtained from Nairobi Stock Exchange market website. This research has deviated from the normal and traditional linear approach to test market efficiency and use of using unit roots to test serial correlation. The daily returns in aspect to skewness and kurtosis was found to be non-normal. From the results, null hypothesis of normality was not rejected. In this study, there is the use of fractional integration thus utilization of ARFIMA to test long term memory and even the traditional unit root test is incorporated to compare both results thus giving a perfect conclusion on whether NSE stock market is definitely weak form efficient in the market. The NSE-20 share Index stocks are used to make an Exchange Traded Fund that is priced and forecasted. Ultimately, the forecasted values of ETF are done on the trend lines similar to the NSE-20 share Index trends, which helps investors to make informed financial decisions when buying any securities traded in NSE market.

PurposeThis paper aims to study the weak form of efficiency of Indian capital market during the period of global financial crisis in the form of random walk.Design/methodology/approachThe study considered daily closing prices of S&amp;P CNX Nifty, BSE, CNX100, S&amp;P CNX 500 from April 1, 2005 to March 31, 2010. The data source is the equity market segment of NSE and BSE. Both parametric and nonparametric tests (“ex‐posts” in nature) are applied for the purpose of testing weak‐form efficiency. The parametric tests include Augmented Dickey‐Fuller (ADF) unit root tests and nonparametric tests include Phillips‐Perron (PP) unit root tests and Run test. ADF tests use a parametric autoregressive structure to capture serial correlation and PP tests use non‐parametric corrections based on estimates of the long‐run variance of ΔYt.FindingsThe results suggested that the Indian stock market was efficient in its weak form during the period of recession. It means that investors should not be able to consistently earn abnormal gains by analysing the historical prices. Hence one should not be able to make a profit from using something that everybody else knows.Practical implicationsThe study reports that all the stocks in these selected indices are fundamentally strong and their prices are not influenced largely by historical prices and other relevant factors which came from industry and any other information that is publically available. Thus it can be concluded that the Indian stock market was informationally efficient and no investor can usurp any privileged information to make abnormal profits.Originality/valueWhere past studies have examined the weak‐form of efficiency of various markets and the effect of globalisation and global financial crisis on the various sectors of developing and emerging economies, this paper attempts to study the weak form of efficiency of the Indian capital market in the period of recession in the form of random walk.

Stock market efficiency is and important parameter to gauge the efficiency of a financial system. It assumes extreme importance especially in developing countries like India. The efficiency of Indian stock markets, especially the leading stock exchange of India - the NSE, attracts the attention of researchers and analysts in view of recent fluctuations in investments levels and the global financial turmoil. The efficiency tests conducted by the researchers so far have produced contradictory results and it is precisely difficult to comment on Indian stock market efficiency with definitiveness. We found it interesting to examine the impact of various macro economic factors both on Indian and global front on Indian stock markets in relation to the rate and manner of incorporation of information, which is the concern of every economic participant in recent times. This paper therefore, attempts to seek evidence for the weak form efficient market hypothesis using the daily data for stock indices of the National Stock Exchange for the period of 1 January 2000 to 31 Oct 2008. We use Kolmogrov -Smirnov, Unit Root and run test to test weak-form efficiency.