Weak-form Efficiency Research Articles

Testing weak form of market efficiency of Bombay Stock Exchange and National Stock Exchange

The paper focuses on how the anticipation of investors regarding future returns is reflected on the share price. The precision and rapidity in which market transforms the expectation and anticipation into prices, measures the market efficiency. Weak form of market efficiency is one of the different degrees of efficient market hypothesis (EMH) that claims all past prices of a stock are reflected in today's stock price. Therefore, technical analysis cannot be used to predict and beat a market. In this the authors have worked on the weak form efficiency of the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE), investigating this by using four series of tests viz. run test, serial correlation test, unit root test and variance ratio test. These tests are performed on recent data, using the last ten years' monthly BSE and NSE data from the period from 2004 to 2014. The results wrap up that monthly returns do not follow random walks in both the stock exchanges. This applies to both BSE and NSE, hence proving them as weak and inefficient.

Testing weak form of market efficiency of Bombay Stock Exchange and National Stock Exchange

The paper focuses on how the anticipation of investors regarding future returns is reflected on the share price. The precision and rapidity in which market transforms the expectation and anticipation into prices, measures the market efficiency. Weak form of market efficiency is one of the different degrees of efficient market hypothesis (EMH) that claims all past prices of a stock are reflected in today’s stock price. Therefore, technical analysis cannot be used to predict and beat a market. In this the authors have worked on the weak form efficiency of the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE), investigating this by using four series of tests viz. Run test, serial correlation test, unit root test and variance ratio test. These tests are performed on recent data, using the last ten years’ monthly BSE and NSE data from the period from 2004 to 2014. The results wrap up that monthly returns do not follow random walks in both the stock exchanges. This applies to both BSE and NSE, hence proving them as weak and inefficient.

Testing the Efficient Market Hypothesis in an Emerging Market: Evidence from Forex Market in Mauritius

The present study investigates the efficiency of the forex market based on the theory of the Efficient Market Hypothesis in Mauritius, a well-diversified and emerging economy in the African region. Hence, this study considers the case of Mauritian forex market nominal spot rate daily data namely EUR/MUR, USD/ MUR, GBP/ MUR and JPY/ MUR over a time period of 5 years ranging from 2012 to 2016. The technique used for analysis is firstly concentrated on the use of Augmented-Dickey Fuller (ADF) and Philips Peron (PP) unit root to test the weak-form of efficiency and secondly, the Johansen Cointegration Test, the Granger Causality Test and Variance Decomposition are utilized to examine the existence of semi-strong form efficiency in the Mauritian foreign exchange market. Results indicated that the unit root test tested by ADF and PP unit root test support the weak form market as it follows a random walk process. Secondly, the Johansen Cointegration test reveals that there is no long run relationships among foreign exchange variables. However, the Granger causality test confirmed the existence of unidirectional and bidirectional relationships among the various exchange rates. Moreover, the Variance Decomposition confirmed the presence of long run co-movements among the exchange rates. Therefore, both tests fail to support the semi-strong form market. This means that one exchange rate can predict one or more exchange rates which is against the semi-strong form market hypothesis. Therefore, it is deduced that the foreign market is efficient in the weak-form but is inefficient in the semi-strong form in Mauritius.

Examining Market Efficiency and Integration of the Islamic Stock Indices

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.

Global financial crisis and weak-form efficiency of Islamic sectoral stock markets: An MF-DFA analysis

This paper estimates the weak-form efficiency of Islamic stock markets using 10 sectoral stock indices (basic materials, consumer services, consumer goods, energy, financials, health care, industrials, technology, telecommunication, and utilities). The results based on the multifractal detrended fluctuation analysis (MF-DFA) approach show time-varying efficiency for the sectoral stock markets. Moreover, we find that they tend to show high efficiency in the long term but moderate efficiency in the short term, and that these markets become less efficient after the onset of the global financial crisis. These results have several significant implications in terms of asset allocation for investors dealing with Islamic markets.

An Empirical Analysis of Behaviour of Stock Market Indices

The present study aims to investigate the presence or absence of weak form market efficiency and unriddle the potential factors impacting the chaotic pattern of the stock market. The study carries the analysis by considering 12 countries’ indices categorized as developing and developed on the basis of their GDP. Five econometric tools were applied for accomplishing the objectives and it was evidenced that the American and Indian stock market are weak-form inefficient whereas most of the statistical tools adjudged three countries (i.e., Hong Kong, Singapore & South Korea) weak-form efficient. It was also unveiled in the study that settlement cycle, information disclosure, thinness of trading, trading hours, and market size could be the potential reasons impacting the weak form of efficiency of the stock market.

Forex Market Weak Form Efficiency and Seasonality : Evidence from India

Forex Market Weak Form Efficiency and Seasonality : Evidence from India

Weak Form Efficiency in Asian Markets—The Case of China, India, Malaysia and South Korea

This paper examines the weak form market efficiency in a group of Asian equity markets. The sample encompasses four emerging markets comprising India, China, South Korea and Malaysia. Daily, weekly and monthly market returns are estimated for a runs test and variance ratio tests. The findings are contrary to some of the previous studies that are based only on unit root tests. This study sheds new lights on the extant literature on market efficiency and has important implications for investors who seek to identify mispriced assets in order to make abnormal profits.

The market efficiency of the Tanzania stock market

The purpose of this article is to examine the efficiency of the Tanzania stock market. The study attempts to answer whether the Tanzania stock market is weak-form efficient. The study applies a battery of tests: the serial correlation test, unit root tests, runs test and the variance ratio test using daily and weekly data with a sample spanning from November 2006 to August 2015 for the Dar es Salaam Stock Exchange (DSE) all share index and from January 2009 to August 2015 for the DSE share index. Overall, the results of the market efficiency are mixed. The serial correlation test, unit root test and the runs test do not support weak-form efficiency, while the more robust variance ratio test supports weak-form efficiency for the DSE. The main contribution of the study is that the market efficiency of the Tanzania stock market has increased over the sample period. Keywords: adaptive market hypothesis, efficiency market hypothesis, serial correlations test, unit root test, runs test, variance ratio test, Dar es Salaam Stock Exchange. JEL Classification: G14, G15

Stock Price Behaviour in Emerging Markets: Tests for Weak-Form Efficiency on the Jamaica Stock Exchange

This paper conducts a number of statistical tests to investigate the weak form efficiency of the Jamaica Stock Exchange (JSE). In contrast to previous studies on the efficiency of the JSE, the paper analyzes the efficiency of all listed stocks, as opposed to the market index. The paper is also the first to explore seasonal patterns on the JSE. An analysis of daily returns on all stocks listed on the JSE over the period January 2, 1992 to December 31, 2001 rejects the hypothesis of randomness in the rates of return series for the majority of stocks listed ...

The Analysis of Weak-Form Efficiency in the Market of Crude Oil

Crude oil is the strategic commodity whose market has become the biggest commodity market in the world over the past 40 years. The main actors in the market, such as producers, refiners, financial institutions, and individual traders are interested in recognizing some trends, patterns or anomalies in performance of oil prices and returns, they could benefit from. Such anomalies among others are calendar effects, for example the day-of-the week effect, the month-of-the year effect, holidays effect or the turn-of-the month effect. Either the calendar effects are observed for stock prices, or for commodity prices, they make the markets inefficient. According to classical Fama’s definition: a market in which prices always fully reflect available information is called efficient. However, there are 3 types of market efficiency: weak-form efficiency, semistrong-form efficiency, strong-form efficiency. The weak-form market efficiency is tested the most often. There are several tools used for its verification, for example: some statistical tests (unit root tests, autocorrelation tests, variance ratio tests), long-run relationships and correlation analysis, calendar effects analysis. Our previous research focused on searching for calendar effects in the market of crude oil (Górska, Krawiec 2015), shows the existence of the-day-of-the week and the month effects. It may imply market inefficiency. That is why the present paper is aimed at further testing weak-form market efficiency. The empirical data covers daily closing prices of crude oil in USD per barrel from 2000 to 2015 and includes, both West Texas Intermediate (WTI) and Brent quotations. Having calculated their logarithmic returns, we apply the following tests: runs test, variance ratio, autocorrelation test.

Testing the efficient market hypothesis on the Nairobi Securities Exchange

This paper tests the weak-form of the efficient market hypothesis (EMH) of the Nairobi Securities Exchange (NSE) using daily and weekly index data from the NSE 20 share index over the period, January 2001 to January 2015 and the NSE All Share Index (ASI) from its initiation, in February 2008 to January 2015. To test weak-form efficiency in this market, this study uses the serial correlation test, unit root tests (ADF and Phillips-Perron) and runs test. Results indicate that we cannot accept the EMH for the NSE using the serial correlation test, unit root tests and the runs test. Overall, the Kenyan market is found to not be weak-form efficient

Testing the weak-form efficiency of agriculture’s capital markets

: This paper investigates the empirical validity of the weak-form Efficient Market Hypothesis [EMH] in global equity markets for agriculture. We examine whether developed agriculture markets are more efficient than emerging agriculture markets. We test six agriculture and food chain indices over the period of time between 2010 and 2013. The weak EMH was tested using the parametric Augmented Dickey-Fuller test as well as the non-parametric Runs test and Autocorrelation function test. The parametric test suggested some evidence for the existence of the weak-form EMH for all six indices in at least some of the five tested periods. However the non-parametric tests clearly proved the inefficiency of all indexes during all periods. Thus we finally rejected the null hypothesis for all indices in all periods. Accordingly agriculture’s developed markets are equally inefficient and predictable as its emerging markets. The results of this work suggest that investors can achieve superior returns by investing in agricultural equity markets following a technical analysis and active portfolio approach. Thus this work is in great interest of investors and portfolio managers following an agriculture strategy. The study adds value to current research of market efficiency in developed as well as emerging markets.

Weak Form Efficient Market Hypothesis Study: Evidence from Gulf Stock Markets

Ever Since Fama (1965) presented his Efficient Market hypothesis, a lot of research has been done to test its authenticity; developed as well as emerging economies are used to validate the theory. The results are conflicting and the change in the current market circumstances persuaded the researcher to investigate the Gulf Stock Markets. Data of six Stock Exchanges in Gulf for the period of five years is taken. Daily closing stock indices of Oman, UAE, Kuwait, Saudi Arabia, Bahrain and Qatar are taken from 1st January 2011 to 31 December 2015, Auto correlation and runs test were used to test the Weak Form Market Efficiency. The results of the Parametric Tests (Both Auto Correlation and Runs test) provide evidence that the Stock prices in all the Gulf Markets are not following the random walk model and the significant auto correlation co-efficient at different lags has rejected the null hypothesis of Weak Form Efficiency.

A Testing of Efficient Markets Hypothesis in Indonesia Stock Market

This research's objective is to see market efficiency form on Indonesia stocks market. Using daily stocks price data gathered from LQ45 Index, Jakarta Islamic Index (JII), and Kompas 100 Index during the periods of 2013 until 2014. Statistical test using run test and serial correlation test to examine weak form efficiency. The result findings showing that Indonesia stock market has been categorized as weak form efficiency. The statistical testing was done and the result are: 1) the daily stocks price movement is random walk, 2) the stock price movement has no correlation between the present day and the previous day.

Market efficiency and price discovery relationships between spot, futures and forward prices: the case of the Iberian Electricity Market (MIBEL)

ABSTRACTThis paper analyses the relationships between prices from three different markets within the Spanish zone of the Iberian Electricity Market (MIBEL), namely futures, spot and over the counter (OTC) forward markets. The study focuses on three items: (i) contrasting the Weak-form efficiency hypothesis of the markets involved in the study, (ii) analysing the Semi-strong-form efficient market hypothesis (EMH) of the MIBEL futures market and (iii) examining the price discovery relationships between the series of prices of the considered markets.The empirical results confirm that 1-month-, 1-quarter-, 1-year-ahead futures and spot markets satisfy, generally, the Weak-form efficiency hypothesis and that MIBEL futures market does not contradict the EMH in its Semi-strong-form. In addition, price discovery relationships have also been found. In particular, there is unidirectional causality from the futures market to the forward market and from the futures market to the spot market for 1-month- and 1-quarter-ahead maturities. This result may be indicative of the agents to use the price of the futures market as a valuable reference.

Comparative Predictive Modeling on CNX Nifty with Artificial Neural Network

CNX Nifty being an important barometer to indicate country's growth has always been followed with lots of interest from both academia and industry. Now, CNX Nifty could be predicted or not on a random basis gives rise to many a questions. This sounds redolent with any predictive modeling, though with a certain degree of accuracy inbuilt into the system. The major point of consideration is that predictive modeling could be done by various measures and mechanisms. In predictive modeling Multiple Adaptive Regression (MARS), Classification and Regression Trees (CART), Logistic OLS or Non Linear OLS could be used. Here in this study, the researcher has utilized Neural Network as a "Predictive Modeler" to predict CNX Nifty closing on certain definite time zones under consideration, because it is closer to the functioning of the human brain in comparison to the other models. As Indian markets are a clear case of the weak form of efficiency, so, Neural Network will be an ideal tool for detection or prediction in this market.

Mutual fund performance: a market efficiency perspective

ABSTRACTThis study reconciles existing literature on stock market efficiency and mutual fund performance by developing a framework to test whether fund managers are able to exploit market inefficiencies. We find a positive relationship between alpha and weak-form market efficiency. Most funds are unable to outperform the market systematically, although a few are able to exploit relatively inefficient markets. Top performing funds are characterised by a better management of downside risk in times of market distress, whilst simultaneously exploiting learning effects when markets return to equilibrium. By conditioning fund performance on the state of the underlying market, we propose a conditional alpha ratio, which helps to better understand fund performance and can improve the fund selection process for investors.

Efficiency of Foreign Exchange Markets: The Case of Nigeria

Notwithstanding a particular economy, exchange rate plays a pivotal role in the determination of major macroeconomic policies. Hence, the efficiency of the foreign exchange market in a developing country like Nigeria is essential with respect to broader macroeconomic facets including the monetary dimension. Accordingly, the current study examines the weak and semi-strong form efficiency of the Nigerian foreign exchange market. Employing time series analysis and examining unit root test, Johansen cointegration test, Wald coefficient test, impulse response function and variance decomposition analysis, it was found that the Nigerian foreign exchange market is weak form efficient but is inefficient in the semi-strong dimension. This reflects that participants would not be able to devise measures to extract excess returns from the market based on historical information, but can engage in profitable transactions once accommodating publicly available information together with historic statistics. Specifically, the possibility of predicting exchange rates of the Naira with other currencies emanating from the Naira-USD exchange rate is very high. Reforms and government intervention should look into making the market more transparent and accountable, which would not only abandon excess returns from the market but will also support export-oriented industries in the economy, foreign exchange reserves and a range of other significant macro-economic facets.

Weak-Form Efficiency of the Indian Stock Market: An Empirical Analysis

The present study attempts to verify weak form of efficient market hypothesis using daily data for the indices of Indian stock market, namely, NIFTY 50 (NSE-50), CNX 500 (NSE-500), CNX IT INDEX (NSE-IT), BANK NIFTY INDEX (NSE-BANK) and NIFTY MIDCAP 100 (NSE-MC100). For the analysis, the study employed GARCH (1, 1) model and EGARCH (1, 1) model over the sample period of 1, January 2010 to 5, November 2015. The study results exhibited that returns series are characterized by high persistence of volatility clusters and leverage effects over the sample period. The empirical findings show that the indices of National Stock Exchanges are not weak form efficient.