Weak Form Efficiency of the Chittagong Stock Exchange: An Empirical Analysis (2006-2016)

Shahadat Hussain,Md Yeasir Arafat Bhuiyan,Sujit Kumer Deb Nath

doi:10.18533/ijbsr.v6i11.1015

Shahadat Hussain, Md Yeasir Arafat Bhuiyan + Show 1 more

Open Access

https://doi.org/10.18533/ijbsr.v6i11.1015

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Abstract

<p>We study the random walk behavior of Chittagong Stock Exchange (CSE) by using daily returns of three indices for the period of 2006 to 2016 employing both non-parametric test (run test) and parametric tests [autocorrelation coefficient test, Ljung– Box (LB) statistics]. The skewness and kurtosis properties of daily return series are non-normal, with a hint of positively skewed and leptokurtic distribution. The results of run test; autocorrelation and Ljung–Box (LB) statistics provide evidences against random walk behavior in the Chittagong Stock Exchange. Overall our result suggest that Chittagong Stock Exchange does not exhibit weak form of efficiency. Hence, there is opportunity of generating a superior return by the active investors.</p>

Highlights

The growth of equity markets and the globalization of financial markets are often the subject of major research studies in developing countries
On the basis of the results of autocorrelation test, Ljung– Box (LB) test and runs test carried out on the sample drawn from CSE, it can be concluded that the stock market returns do not follow random walk and they provide evidence against the weak form of efficiency of Chittagong Stock Exchange during our study period
Our study mainly focuses on parametric autocorrelation test and non-parametric run test to test the random walk hypothesis of Chittagong Stock Exchange (CSE)

Summary

INTRODUCTION

The growth of equity markets and the globalization of financial markets are often the subject of major research studies in developing countries. Market Efficiency is defined by Fama (1970 and 1991) as a market in which prices always fully reflect all available information. Weak form of efficiency indicates that price of financial assets reflects all information contained in the past prices. The hypothesis states that stock price changes have the same distribution and are independent of each other, so the past movement or trend of a stock price or market cannot be used to predict its future movement. On the basis of the results of autocorrelation test, LB test and runs test carried out on the sample drawn from CSE, it can be concluded that the stock market returns do not follow random walk and they provide evidence against the weak form of efficiency of Chittagong Stock Exchange during our study period

LITERATURE REVIEW

AUTOCORRELATION

RUN TEST

DESCRIPTIVE STATISTICS

AUTOCORRELATION TEST

CONCLUSION