Non-linear approach to Random Walk Test in selected African countries

2018 ◽  
Vol 14 (3) ◽  
pp. 362-376 ◽  
Author(s):  
Emmanuel Joel Aikins Abakah ◽  
Paul Alagidede ◽  
Lord Mensah ◽  
Kwaku Ohene-Asare
Keyword(s):  
South Africa ◽  
Random Walk ◽  
Stock Market ◽  
Market Efficiency ◽  
Unit Root ◽  
Unit Root Test ◽  
Weak Form ◽  
African Countries ◽  
Content Type ◽  
Non Linear

Purpose The purpose of this paper is to re-examine the weak form efficiency of five African stock markets (South Africa, Nigeria, Egypt, Ghana and Mauritius) using various tests to assess the impact of non-linearity effect and thin trading which are prevalent in African markets on market efficiency. Design/methodology/approach The weekly returns of S&P/IFC return indices for five African countries over the period 2000-2013 were obtained from DataStream and analyzed. The study adopted the newly developed Non-Linear Fourier unit root test advanced by Enders and Lee (2004, 2009) which allows for an unknown number of structural breaks with unknown functional forms and non-linearity in data generating process of stock prices series to test the Random Walk Hypothesis (RWH) for the five markets, and an augment regression model. Findings In light of the empirical evidence the author(s) using Non-linear Fourier Unit Root Test only fail to reject the RWH for South Africa, Nigeria and Egypt leading to the conclusion that these markets follow the RWH and weak-form efficient whilst Ghana and Mauritius are weak-form inefficient. Besides, evaluating non-linear models without adjusting for thin trading effect shows that, South Africa and Ghana markets are weak-form efficient while Nigeria, Egypt and Mauritius are not. However, after accounting for thin trading effect, the author(s) find that South Africa and Egypt markets follow the RWH. The findings imply that market efficiency results depend on the methodology used. Originality/value This paper provides further evidence on stock market efficiency in emerging markets. The finding suggests that thin trading and non-linearity effect influences markets efficiency tests in African stock markets. Thus, recent structural adjustment and liberalization policies have not enhanced stock market operations in Africa. This paper therefore has implications for policy makers and international investors.

scholarly journals The market efficiency of the Tanzania stock market

2016 ◽  
Vol 11 (3) ◽  
pp. 75-86 ◽  
Author(s):  
Josephine Njuguna
Keyword(s):  
Stock Market ◽  
Market Efficiency ◽  
Unit Root ◽  
Stock Exchange ◽  
Unit Root Test ◽  
Weak Form ◽  
Ratio Test ◽  
Variance Ratio ◽  
Test Unit ◽  
Variance Ratio Test

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

Do the Stock Market Indices Follow a Random Walk?

2021 ◽  
pp. 389-410
Author(s):  
Cristina Vasco ◽  
Pedro Pardal ◽  
Rui Teixeira Dias
Keyword(s):  
Random Walk ◽  
Stock Market ◽  
South Korea ◽  
Market Efficiency ◽  
Stock Markets ◽  
Weak Form ◽  
Efficient Market ◽  
Efficiency Hypothesis

This chapter aims to test the hypothesis of an efficient market, in its weak form, in the stock markets of Brazil, China, South Korea, USA, Spain, Italy, in the period from December 2, 2020 to May 12, 2020. The results show that the market efficiency hypothesis is rejected in all markets. In corroboration the DFA exponents show long memories, which put in question the market efficiency, in its weak form, suggesting that the stock markets analyzed show some predictability. In conclusion, investors should avoid investing in stock markets, at least while this pandemic lasts, and invest in less risky markets in order to mitigate risk and improve the efficiency of their portfolios.

scholarly journals Random Walk Hypothesis for Stock Prices in Fiji

2021 ◽  
Vol 13 (2) ◽  
pp. 79-88
Author(s):  
Janesh Sami
Keyword(s):  
Random Walk ◽  
Stock Market ◽  
Unit Root ◽  
Stock Prices ◽  
Structural Break ◽  
Weak Form ◽  
Efficient Market Hypothesis ◽  
Random Walk Hypothesis ◽  
Augmented Dickey Fuller ◽  
Historical Movement

The main goal of this paper is to investigate the random walk hypothesis in Fiji using monthly data from January 2000 to October 2017. Applying augmented Dickey Fuller (ADF 1979, 1981) and Phillips-Perron (1988), Zivot-Andrews (1992), and Narayan and Popp (2010) unit root tests, this study finds that stock prices is best characterized as non-stationary. The estimated multiple structural break dates in the stock prices corresponds with devaluation of Fijian dollar by 20 percent in 2009 and General Elections in September 2014, which Fiji First Party won by majority votes. The empirical results indicate that stock prices are best characterized as a unit root (random walk) process, indicating that the weak-form efficient market hypothesis holds in Fiji’s stock market. Hence, it will be difficult to predict future returns based on historical movement of stock prices in Fiji’s stock market.

Does PPP hold in African countries? Further evidence based on a highly dynamic non-linear (logistic) unit root test

2006 ◽  
Vol 38 (20) ◽  
pp. 2453-2459 ◽  
Author(s):  
Tsangyao Chang ◽  
Hsu-Ling Chang ◽  
Hsiao-Ping Chu ◽  
Chi-Wei Su
Keyword(s):  
Unit Root ◽  
Unit Root Test ◽  
Evidence Based ◽  
African Countries ◽  
Non Linear

scholarly journals Weak Form Efficiency of Pakistan Stock Market using Non-Parametric Approaches

2011 ◽  
Vol 2 (6) ◽  
pp. 249-257
Author(s):  
Muhammad Irfan ◽  
Maria Irfan .
Keyword(s):  
Stock Market ◽  
Unit Root ◽  
Stock Exchange ◽  
Unit Root Test ◽  
Weak Form ◽  
Lilliefors Test ◽  
Anderson Darling ◽  
Non Parametric ◽  
Weak Form Efficiency

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.

Testing Random Walk and Market Efficiency: A Cross-Stock Market Analysis

2018 ◽  
Vol 53 (4) ◽  
pp. 225-238
Author(s):  
Subrata Roy
Keyword(s):  
Random Walk ◽  
Stock Market ◽  
Market Efficiency ◽  
Stock Exchange ◽  
Unit Root Test ◽  
Jel Classification ◽  
Test Statistics ◽  
Random Walk Hypothesis ◽  
Index Value ◽  
Daily Returns

The study seeks to examine the Random Walk Hypothesis (RWH) and market efficiency of the selected stock market indices particularly London Stock Exchange, EuroStoxx 50, Nihon Keizai Shimbum (NIKKI), Shanghai Composite Stock Exchange and Bombay Stock Exchange. Daily closing index value is considered and transformed into logarithm return. Various tests like serial independence test, unit root test and multiple variance tests are applied. It is observed that the null hypotheses (presence of random walks) of the daily returns of the indices are rejected and in few cases are accepted based on various test statistics. JEL Classification: G00, G01, G02

scholarly journals The Behavior of Indonesian Stock Market: Structural Breaks and Nonlinearity

2011 ◽  
Vol 13 (3) ◽  
pp. 209
Author(s):  
Rahmat Heru Setianto ◽  
Turkhan Ali Abdul Manap
Keyword(s):  
Random Walk ◽  
Stock Market ◽  
Unit Root ◽  
Structural Breaks ◽  
Test Procedure ◽  
Composite Index ◽  
Unit Root Test ◽  
Efficient Market Hypothesis ◽  
Nonlinear Behaviour ◽  
Standard Linear

This study empirically examines the behaviour of Indonesian stock market under the efficient market hypothesis framework by emphasizing on the random walk behaviour and nonlinearity over the period of April 1983 - December 2010. In the first step, the standard linear unit root test, namely the augmented Dickey-Fuller (ADF) test, Phillip-Perron (PP) test and Kwiatkowski-Philllips-Schmidt-Shin (KPSS) test identify the random walk behaviour in the indices. In order to take account the possible breaks in the index series Zivot and Adrews (1992) one break and Lumsdaine and Papell (1997) two breaks unit root test are employed to observe whether the presence of breaks in the data series will prevent the stocks from randomly pricing or vice versa. In the third step, we employ Harvey et al. (2008) test to examine the presence of nonlinear behaviour in Indonesian stock indices. The evidence of nonlinear behaviour in the indices, motivate us to use nonlinear unit root test procedure recently developed by Kapetanios et al. (2003) and Kruse (2010). In general, the results from standard linear unit root test, Zivot and Adrews (ZA) test and Lumsdaine and Papell (LP) test provide evidence that Jakarta Composite Index characterized by a unit root. In addition, structural breaks identified by ZA and LP test are corresponded to the events of financial market liberalization and financial crisis. The nonlinear unit root test procedure fail to rejects the null hypothesis of unit root for all indices, suggesting that Jakarta Composite Index characterized by random walk process supporting the theory of efficient market hypothesis.     

scholarly journals Testing Weak Form of Market Efficiency in Nepal

2016 ◽  
Vol 1 ◽  
Author(s):  
Jeetendra Dangol
Keyword(s):  
Random Walk ◽  
Stock Market ◽  
Market Efficiency ◽  
Stock Returns ◽  
Weak Form ◽  
Corrected Data ◽  
Infrequent Trading ◽  
Normally Distributed

The paper investigates the weak form of market efficiency for overall and sectorial indices. The Nepalese stock returns are found not being normally distributed during the study period. The autocorrelation of the stock returns was reduced by correcting the data with the application of the methodology suggested by Miller et al. (1994). The Nepalese stock market has suffered from the problem of thin-trading. Overall, the Nepalese market is not weak-form efficient on the basis of the analysis performed by employing observed returns series; but it is found a weak-form efficient in case of the analysis while using corrected data after adjusting infrequent trading. Hence, the study is supported to the random-walk and weak form of market efficiency.

scholarly journals Is the Configuration of Indian Stock Market Weakly Efficient?

2021 ◽  
Vol 9 (3) ◽  
pp. 1-6
Author(s):  
Aditya Prasad Sahoo
Keyword(s):  
Stock Market ◽  
Unit Root ◽  
Unit Root Test ◽  
Weak Form ◽  
Stock Valuation ◽  
Monthly Basis ◽  
Stock Market Efficiency ◽  
Run Test ◽  
Indian Stock Market ◽  
Ks Test

The main aim of this study is to find out the whether the Indian stock market efficiency is in weak form. The aim of this study is to look into the Indian Stock Market’s lack of market performance. From 2000 to 2015, sample is gathered on a daily, weekly, and monthly basis. Unit Root Test, Run Test, and KS Test are used to examine the data. According to the findings, The Runs Test disproves the existence of a random walk and demonstrates that the Indian stock market is not weakly efficient. Through stock valuation strategies, technical and fundamental analysts may generate volatile returns.

Globalization and Time-Varying Market Efficiency

2019 ◽  
pp. 480-499
Author(s):  
Melik Kamışlı ◽  
Serap Kamışlı ◽  
Fatih Temizel
Keyword(s):  
Real Estate ◽  
Market Efficiency ◽  
Portfolio Management ◽  
Unit Root ◽  
Unit Root Test ◽  
Weak Form ◽  
Global Scale ◽  
Time Varying ◽  
Policy Makers ◽  
Weak Form Efficiency

The main purpose of this study is to determine time-varying weak form efficiency of 18 Borsa İstanbul sub-sector indices. In line with this purpose weak form efficiency is tested with innovative technique alongside traditional methods. The study indicated that bank, real estate invest trusts, holding & investments, telecommunication, wood, paper & printing, insurance, tourism and transportation indices are not linear. The weak form efficiency of aforementioned indices is analyzed with a rolling KSS unit root test developed by Yılancı. It is concluded depending on the applied tests that weak form efficiency of all of the nonlinear sub-sector indices has a time-varying structure. Results also showed that global scale events affect weak form efficiency of the indices in different durations. Findings gained from the study can be used by investors in strategic portfolio management decisions and by policy makers as well.

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