Abstract
This paper studies the performance of Karachi Stock Exchange (KSE) of Pakistan via nonparametric approaches. The study includes the weekly open and closing prices of KSE- 100 indexes for the period of 1st January 1999 to 31st August 2009. Several non-parametric approaches including KolmogorovSmirnov test (Lilliefors test), Ryan-Joiner test (Shapiro-Wilk), Anderson-Darling test, Phillips Perron (PP) unit root test and Runs test are used to test the conviction of the KSE stock market. All non-parametric tests graphically and numerically inform us that both return series do not follow the assumption of normality and randomness, which means rejecting the hypothesis of weak form of efficiency. Generally, results from the observed analysis strongly recommend that the Karachi Stock Market of Pakistan is not efficient.
Highlights
Introduction and Literature ReviewPakistan is facing a number of troubles to stabilize its healthier economy
Hussain (1996), Chakraborty (2006) and recently Irfan et al (2010) investigated the Karachi Stock Exchange (KSE) by the help of parametric tests and all of them concluded that the KSE is an inefficient stock market in Pakistan, which is an indication for the investors that the risk factor will be involved if they want to deal with the KSE because of the uncertainty of the prices in the returns
We study the performance of Karachi Stock Exchange (KSE) of Pakistan via non-parametric approaches: Kolmogorov-Smirnov tests (Lilliefors tests), Ryan-Joiner tests (Shapiro-Wilk) and Anderson-Darling test are used to check the assumption of normality and Phillips Perron (PP) unit root test and Runs test are used to test the randomness of the returns of the KSE stock market
Summary
Introduction and Literature ReviewPakistan is facing a number of troubles to stabilize its healthier economy. Weak form of efficiency has been a burning issue in many developed and developing countries. Pakistan is one of the developing countries facing this issue; this is especially true about Karachi Stock Exchange (KSE). Hussain (1996), Chakraborty (2006) and recently Irfan et al (2010) investigated the KSE by the help of parametric tests and all of them concluded that the KSE is an inefficient stock market in Pakistan, which is an indication for the investors that the risk factor will be involved if they want to deal with the KSE because of the uncertainty of the prices in the returns. The weak form of efficiency of KSE via non-parametric methods is used in this paper and, via non-parametric tests, it is concluded that KSE is an inefficient stock market. Some earlier studies show that the exploration of the weak form of efficient market hypothesis in both developed and developing countries
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