Weak-form Market Efficiency Research Articles

Is Sukuk Market Efficient? Evidence from the Malaysian Sukuk Market

Market efficiency in capital markets is used to explain the degree to which prices reflect all available and relevant information about the fundamental value of the securities to help investors make informed decisions. Sukuk are priced according to the value of the assets backing them. The aim of the paper is to measure market efficiency of three Malaysian sukuk indices namely Bloomberg AIBIM Bursa Malaysia Corporate Sukuk Index (AIBIM), Bloomberg Malaysian Sukuk Ex-MYR Index (EXMYR) and Malaysian Foreign Currency Sukuk Index (MFCSUKUK). Daily returns of the three sukuk indices are collected for the period of 2010 until 2015. The efficiency was measured using GARCH-in-Mean (GARCH-M) estimation to identify different types of sukuk market efficiency. The findings indicate that EX-MYR and MFCSUKUK indices display weak form efficient market behaviour while AIBIM falls under the inefficient category. The inefficient market signals that all public information might not be fully reflected in the price, hence there is room for bargaining process or prices could be under or over-valued. For industry players, sukuk structural inefficiencies and sectorial mispricing behavior create investment opportunities due to possible existence of excess profit. For policy makers, an extreme case of inefficient market leads to market failure and welfare loss.

Weak form market efficiency: A case study of Asia-Pacific markets

This study aims to test the weak form market efficiency for five developed markets, nine emerging markets and three frontier markets in the Asia-Pacific region. The tools applied in the test of this form of market efficiency are serial correlation test, runs test and unit root test. The analysis is performed by using logarithm return for the period of 2008 to 2018. For all markets in our research, the results strongly reject the weak form efficiency when the unit root tests are carried out, while the results from the Durbin-Watson test are in complete contrast. However, in the runs test and variance ratio test, the results provide mixed evidences of weak form efficiency of the markets

Testing Weak Form of Market Efficiency of Exchange Traded Funds at the NSE Market

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.

Testing the weak form market efficiency of Borsa Istanbul: an empirical evidence from Turkish banking sector stocks

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.

GELECEK 11 ÜLKELERİNDE DÖVİZ KURU ZAYIF FORM PİYASA ETKİNLİĞİNİ TAKİP ETMEKTEDİR Mİ? KAPSAMLI BİRİM KÖK TESTLERİ İLE KANITLAR

Examining the efficiency of the market is a substantial issue for economies particularly in developing markets. The purpose of this study is to investigate the validity of weak-form market efficiency by using linear and nonlinear unit root tests of the exchange rate against the US dollar of the Next 11 countries over the period of January 1998 until December 2019. To this effect, we firstly perform the Harvey et al. (2008) linearity test to determine the characteristics of the series. Afterward, in order to examine the weak-form market efficiency, KPSS (1992), Zivot-Andrews (1992) and Lee-Strazicich (2013) tests were applied to linear series while Kapetanios et al. (2003) and Kruse (2011) tests were performed to nonlinear series. Generally, the findings revealed that the validity of the weak-form market efficiency is accepted for the Next 11 countries’ exchange rate. Depending on these results, the majority of the Next 11 countries’ exchange rate follows random walk hence it can be asserted that the current price of the exchange rate cannot be estimated by evaluating its historical prices. The obtained results also suggest that temporary shocks in the exchange rate leave permanent effects in the majority of Next 11 countries.

Predictive power of ARIMA models in forecasting equity returns: a sliding window method

The ARIMA model is widely adopted by the financial industry as the standard statistical instrument for forecasting asset returns. Numerous studies have compared the accuracy of the ARIMA model with other competing models. However, there are no studies that cover a broad range of equities and their time series. Furthermore, there is no clear guideline on the time series window selected to fit the ARIMA model. In addition, there are no firm conclusions on whether older information in the sample should be abandoned. This makes it impossible to draw a definitive conclusion about the predictive power of the ARIMA model. This study sets out to address this gap in the literature. It summarizes more than two million ARIMA forecasts of future daily returns, using data from January 3, 1996 to May 12, 2017. The forecasts are run with different model parameter settings. We find that the five-year sliding fixed-width window fits US equity market asset prices to the highest degree, with an annual over-optimistic error of 2.6561%. However, when environments with positive and negative returns are separated, the ARIMA models generate forecasting errors of − 0.0009% and 0.011%, and both underestimate gain and loss. These errors are lower for low volatility equities. We conclude that the lack of nonlinearity of the ARIMA model is not a major concern, and that the ARIMA models do not lose their validity if the data windows are carefully selected. Our conclusions are not in conflict with the weak form market efficiency hypothesis and are robust in an environment with transaction cost.

A Generalised Seasonality Test and Applications for Stock Market Seasonality

This study develops a novel generalised seasonality test that utilises sequential dummy variable regressions for seasonality periodicity equal to prime numbers. It allows both to test for existence of any seasonal patterns against the broad null hypothesis of no seasonality and to isolate most prominent seasonal cycles while using harmonic mean p-values to control for multiple testing. The proposed test has numerous applications in time series analysis. As an example, it is applied to identify seasonal patterns in 76 national stock markets to detect trading cycles, determine their length, and test the weak-form efficient market hypothesis.

Hangi Sektörlerde Getiri Öngörülebilirliği İçin Tarihsel Fiyatlar Kullanılabilir Otomatik Portmanteau Testi ile Borsa İstanbul Üzerine Ampirik Bir Çalışma

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.

“Is Dhaka Stock Exchange (DSE) efficient in weak form after introducing new indices from 2013?”

Testing the Efficient Market Hypothesis (EMH) is considered one of the center points of modern financial economics. This research seeks to test the weak-form market efficiency of the Dhaka Stock Exchange (DSE) after the introduction of new indices from 2013 using DSE Broad Index (DSEX), DSE Shariah Index (DSES) and DSE selected 30 Index (DS30). Besides the primary objective of testing whether the Dhaka Stock Exchange (DSE) market shows efficiency in weak form or not i.e. market follows a random walk model or not after the introduction of new indices from 2013, this paper also widens its analysis on to test the impact of institutional factors in analyzing the volatility in the market and in exploring the relationship between risk and return.

Predictability of Stock Returns on the Dhaka Stock Exchange

The study examines the predictability of index returns on the Dhaka stock market within the framework of the weak-form efficient market hypothesis using historical daily returns for a period of 1st June, 2014 to 29th May, 2020. The Jarque-Bera statistics test explored the return distribution of Dhaka Stock Exchange is non-normal. The random walk hypothesis (RWH) was tested using autocorrelation test, runs test, unit root tests(Augmented Dickey-Fuller (ADF) and, Phillip-Perron (PP) test) and variance ratio test. The results explored that all tests rejected the random walk hypothesis required by the weak-form efficient market hypothesis. This provides empirical basis to infer that the DSE is inefficient at weak-form and stock return can be predicted. The rejection of the RWH on a daily basis is possibly an indication that the weak-form inefficient characteristic of the DSE is not sensitive to return frequency.

Market efficiency of the crude palm oil: Evidence from quantum harmonic oscillator

This study examines the weak-form efficient market hypothesis of the crude palm oil market by adopting the quantum harmonic oscillator. This approach allows us to analyze market efficiency by estimating one parameter: the probability of finding the market in a ground state. Our results confirm that the crude palm oil market is more efficient than the West Texas Intermediate crude oil market. We explain the greater market efficiency comes from a small proportion of speculative transactions, resulting from tight market operation policies.

Hisse Senedi Piyasalarının Zayıf Form Piyasa Etkinliğinin Küresel Ölçekte Karşılaştırılması: G-20 Üyeleri Üzerine Ampirik Bir Çalışma

This paper analyzes stock markets of G-20 members in terms of comparing return predictability, in other words, weak-form market efficiency using stock indexes weekly data of the G-20 members between 07.06.2009 and 09.02.2020. As a result of the wild bootstrap automatic variance ratio test analysis developed by Kim (2009), it is found that the stock markets of Brazil, South Africa, and Germany were weak-form efficient in the date range within the scope of the study, so the returns are unpredictable, while the weak-form efficiency (return predictability) of other markets are time-varying. In addition to Brazil, South Africa, and Germany, there is a very low chance to estimate returns with historical price movements or returns in Russia, France, Italy, United States, United Kingdom, and Canada stock markets. It is also found that the return predictability periods of Japan, Australia, China, Saudi Arabia, and especially Mexico’s stock markets are higher than other markets and the chance of success in estimating returns by using historical price information in these markets is quite high.

Predicting Intraday Prices in the Frontier Stock Market of Romania Using Machine Learning Algorithms

This paper investigates if forecasting models based on Machine Learning (ML) Algorithms are capable to predict intraday prices in the small, frontier stock market of Romania. The results show that this is indeed the case. Moreover, the prediction accuracy of the various models improves as the forecasting horizon increases. Overall, ML forecasting models are superior to the passive buy and hold strategy, as well as to a naïve strategy that always predicts the last known price action will continue. However, we also show that this superior predictive ability cannot be converted into “abnormal”, economically significant profits after considering transaction costs. This implies that intraday stock prices incorporate information within the accepted bounds of weak-form market efficiency, and cannot be “timed” even by sophisticated investors equipped with state of the art ML prediction models.

Are clean energy stocks efficient? Asymmetric multifractal scaling behaviour

We examine the multifractal scaling behaviour and weak form market efficiency of clean energy stock indices using an asymmetric MF-DFA. We find asymmetric multifractality in the US, European, and global clean energy stock indices. Asymmetric multifractality in the clean energy stock index of the US is due to fat-tails and long-range correlation. However, for European and global clean stocks, multifractality is due only to fat-tailed distribution. We find higher efficiency in the upward trend of the European and global clean stock markets whereas, for the US, the market is less efficient when the market is upward trending. The time-varying market deficiency measure shows that US clean energy stocks are becoming relatively more efficient over time.

Conditional violation of weak-form market efficiency

PurposeMany prior tests of market efficiency, which occurred decades ago, were limited by data and did not employ methodology to correct for leptokurtosis in the stock return distribution. Furthermore, these studies did not test many aspects of conditional market efficiency. One aspect of a potential conditional violation of market efficiency is whether stock markets are efficient conditional on the level of stock return.Design/methodology/approachThis paper uses quantile regressions to control for leptokurtosis in the stock return distribution and simultaneous quantile regressions to test whether markets are efficient conditional on the level of the market return. This paper uses market-level stock return data to bias against finding significant results in the efficiency tests. Furthermore, the author uses data from 1926 through 2018, providing the longest time period to date under which market efficiency is tested.FindingsThis paper presents evidence that the autoregressive coefficient decreases across return levels in stock market indices. The autoregressive coefficient is positive around highly negative returns and negative or insignificant around highly positive returns, which suggests that when stock returns are low they are more likely to continue lower, and when stock returns are high they are more likely to reverse. Results additionally suggest that market efficiency is not time-invariant and that stock markets have become more efficient over the sample period.Originality/valueThis paper extends the literature by finding evidence of a violation of weak-form market efficiency conditional on the level of stock returns. It further extends the literature by finding evidence that the stock market has become more efficient between 1926 and 2018.

Testing Weak-Form Market Efficiency: The Case of Saudi Arabia

The study intends to investigate if the stock market in Saudi Arabia follows the weak form of market efficiency using daily data from Tadawul All Share Index (TASI). The daily data was collected from January 2012 to January 2019. The study employed different of tests types such as: autocorrelation, unit root test, runs test, and variance decomposition test that are used to assess the daily data of the Saudi stock market. The results from autocorrelation, unit root test, runs test, and variance decomposition test indicate that the Saudi stock market does not follow the weak form of market efficiency. However, future studies are required to understand variations in the Saudi stock market prices. Additionally, the results recommend conducting further studies to test the semi-strong form of efficient market hypothesis in Saudi Arabia.Moreover, future studies also need to focus on the adoption of correction and regulations by the policymakers in the Saudi stock market.

Does Global Financial Crisis Integrate the Regional Market in Asia More Strongly?

The aim of this paper is to analyze whether the worldwide financial crisis integrates the regional markets in Asia more strongly. Secondly, it is also to examine whether the integration of regional markets in Asia necessarily leads to a weak form of market efficiency. To examine this we have considered the different broad based and liquid stock indices such as the Sensex and BSE 100 from the Bombay Stock Exchange; the S&P CNX Nifty from the National Stock Exchange, representing India; the Hang Seng Index from the Hong Kong Stock Exchange, representing China; the Kuala Lumpur Composite Index (KLSE), Bursa Malaysia representing Malaysia; the Nikkei 225 from the Tokyo Stock Exchange representing Japan, and the Straits Times Index (STI) from the Singapore Exchange representing Singapore. The study considered the daily data spanning from 4th January 1994 to 2nd May 2012. The full sample period was split into three forms such as the whole sample, the Global financial crisis and the post global financial crisis. The short term interaction was studied by using Toda Yamamoto’s procedure of Granger’s Causality in VAR Block Exogenity form and the long run equilibrium relationship was tested by applying the Johansen Maximum Likelihood procedure. And so the paper explored the possible, integrating relationship at the volatility level among the regional stock indices by applying the ARCH school of models. Finally, the Random Walk Hypothesis was tested by employing the Chow-Denning (1993) and the Lo and Mackinlay (1988) multiple variance ratio test to examine the efficiency of the market. The major findings of the study indicated that the worldwide financial crisis integrates the regional markets in Asia more strongly in the short term from 2007 onwards. There is no long run equilibrium relationship among the regional stock markets. The study also found that the integration of the financial market does not necessarily contribute to market efficiency.

Market efficiency and calendar anomalies in commodity futures markets: A review

This study reviews the literature on market efficiency and calendar anomalies in agricultural commodity futures markets in India and abroad. The study finds that most studies used ordinary least squares regression analysis to test for the weak form of market efficiency and only a few markets are found to be weakly efficient. Many studies that depict market inefficiency report the presence of calendar anomalies in metals and agricultural commodity futures. The most frequently observed calendar anomalies are the day-of-the-week effect and the month-of-the-year effect. Knowing about these market inefficiencies may help commodity market players formulate their purchase, sale, and trading strategies.

Unobserved structural shifts and asymmetries in the random walk model for stock returns in African frontier markets

The purpose of this study is to examine the weak-form market efficiency hypothesis (EMH) for 8 African Frontier markets between 2001 and 2017. To achieve this purpose, we employ unit root testing p...

Validity of Weak-Form Market Efficiency in Central and Eastern European Countries (CEECs): Evidence from Linear and Nonlinear Unit Root Tests

Abstract This paper aims to focus weekly stock market prices from the CEECs (Lithuania, Hungary, Romania, Croatia, Slovenia, Poland, Bulgaria, the Slovak Republic, Latvia, Estonia, and the Czech Republic) markets for evidence of weak-form market efficiency. This is complemented by the use of comprehensive unit root tests to test for abnormal return behaviour in these stock markets. For this purpose, Harvey et al. (2008) linearity test was applied in order to determine the characteristics of the series. The results indicate that the series with linear characteristics are Slovenia, Bulgaria, the Slovak Republic, Estonia, and the Czech Republic and those with non-linear characteristics are Lithuania, Hungary, Romania, Croatia, Poland, and Latvia. Then, in order to examine the weak-form market efficiency, DF-GLS (1996), Phillips-Perron (1988) and Lee-Strazicich (2003) unit root tests are applied to linear series and Kapetanios et al. (2003) and Kruse (2011) tests were applied to nonlinear series. The linear and nonlinear unit root tests evidence that all the selected stock markets in CEECs have a unit root, in other words, are non-stationary. In the period analyzed, the results suggest that the weak-form efficient market hypothesis holds in the CEECs. Accordingly, the results indicate support for the validity of the random walks hypothesis in all the selected stock markets in CEECs. It means that investors should not be able to earn abnormal returns by carrying out the same analysis and analysing historical prices in CEECs. The finding of weak-form market efficiency has notable implications from the point of capital allocation, stock price predictability, and the influence of shocks to stock prices.