ON THE VALIDITY OF THE RANDOM WALK HYPOTHESIS APPLIED TO THE DHAKA STOCK EXCHANGE

2004 ◽  
Vol 07 (08) ◽  
pp. 1069-1085 ◽  
Author(s):  
MOHAMMAD S. HASAN
Keyword(s):  
Random Walk ◽  
Stock Returns ◽  
Null Hypothesis ◽  
Stock Exchange ◽  
Statistical Tests ◽  
Weak Form ◽  
Efficient Market Hypothesis ◽  
Testing Procedures ◽  
Random Walk Hypothesis ◽  
Bds Test

This paper employs a battery of statistical tests to examine the random walk variant of the weak-form efficient market hypothesis (EMH) using the daily data of the Dhaka Stock Exchange, the major equity market of Bangladesh, over a period of January 1990 to December 2000. The test results, however, are at variance across testing procedures and sub-periods. Results based on the random walk model and unit root tests show that the null hypothesis of randomness cannot be rejected and stock prices have a significant random walk or permanent component. Our analysis of autocorrelation functions indicates mean-reversion behavior of stock returns in most cases albeit with stock returns exhibiting some memory and predictable components during the bubble and post-speculation periods. The evaluation of the EGARCH-M model suggests significant asymmetric and leverage effects during the sub-period of speculative bubbles of 1996–1997. The BDS test indicates evidence of nonlinear long-term dependence during the pre-speculation period, while during the speculation and post-speculation periods the null hypothesis of nonlinear independence was not rejected. Overall, based on this evidence we do not categorically claim that the Dhaka Stock Exchange is weak-form efficient. However, these findings underscore the predictive significance and relevance of the random walk hypothesis as a generalized theory in explaining movements of share prices.

scholarly journals Predictability of Stock Returns on the Dhaka Stock Exchange

The Batuk ◽  
2020 ◽  
Vol 6 (2) ◽  
pp. 87-96
Author(s):  
Yub Raj Dhungana
Keyword(s):  
Random Walk ◽  
Stock Returns ◽  
Stock Exchange ◽  
Weak Form ◽  
Efficient Market Hypothesis ◽  
Daily Basis ◽  
Ratio Test ◽  
Efficient Market ◽  
Random Walk Hypothesis ◽  
Augmented Dickey Fuller

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.

scholarly journals Do extreme market value ratios mean that the market is informationally inefficient? A study of the Warsaw Stock Exchange

2021 ◽  
Vol 43 ◽  
pp. 206-224
Author(s):  
Jacek Karasiński ◽  
◽  
Patryk Zduńczak ◽  
◽  
◽  
...  
Keyword(s):  
Random Walk ◽  
Market Efficiency ◽  
Stock Returns ◽  
Stock Exchange ◽  
Market Value ◽  
Weak Form ◽  
Efficient Market Hypothesis ◽  
Common Belief ◽  
Market Inefficiency ◽  
Warsaw Stock Exchange

Aim/purpose–The aim of this paper is to verify whether extremely high values of mar-ket value ratios are the symptoms of informational inefficiency of the market in a weak form. The authors intend to examine whether these phenomena co-occur with each other.Design/methodology/approach–Following Bachelier’s strict random walk model, we quantified a weak-form informational market efficiency with the use of the percentage of normality tests in stock returns run (Expanded Shapiro–Wilk, D’Agostino-Pearson and Jarque–Bera), which indicate that the analyzed distribution is normal (a null hypothesis cannot be rejected). The empirical study was based on the comparison of the market value ratios (P/E and P/BV) and the informational efficiency measure at the level of particular companies, listed on the Main Market and NewConnect of the Warsaw Stock Exchange, and grouped into eight sectors. In order to do this, we analyzed scatterplots, descriptive statistics, Pearson’s and Spearman’s rank correlation coefficients. The da-taset covered 214 companies (based on the assumptions made) in the period from 2016, December 31 to 2020, March 23.Findings–Results obtained indicated that, in most cases, the extremely high values of market value ratios did not co-occur with market inefficiency. Hence, the outstandingly high market value ratios do not have to be the symptoms of market inefficiency. Research implications/limitations–Following a common belief shared in the industry, but still not examined yet, this study examines the possible co-occurrence of extremely high market valuation and market inefficiency, but does not exploit it fully. The authors encourage other researchers, especially, to apply other market value ratios and to come up with their own ideas for market efficiency proxies. What is more, this study has been conducted on a relatively small market, thus the conclusions drawn from the study on the WSE should be tested on other, more developed markets.Originality/value/contribution–According to the authors’ knowledge, this study is one of the first trying to examine if the extremely high market value ratios are the symp-toms of the informational inefficiency of the market.Keywords: efficient market hypothesis, weak-form efficiency, market value ratios, stock markets, random walk. JEL Classification:G10, G12, G14.

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.

FRACTALITY EVIDENCE AND LONG-RANGE DEPENDENCE ON CAPITAL MARKETS: A HURST EXPONENT EVALUATION

Fractals ◽  
2014 ◽  
Vol 22 (04) ◽  
pp. 1450010 ◽  
Author(s):  
CAMELIA OPREAN ◽  
CRISTINA TĂNĂSESCU
Keyword(s):  
Random Walk ◽  
Stock Returns ◽  
Long Range ◽  
Capital Markets ◽  
Hurst Exponent ◽  
Efficient Market Hypothesis ◽  
Long Range Dependence ◽  
Fluctuation Analysis ◽  
Random Walk Hypothesis ◽  
Detrended Fluctuation

Since the existence of market memory could implicate the rejection of the efficient market hypothesis, the aim of this paper is to find any evidence that selected emergent capital markets (eight European and BRIC markets, namely Hungary, Romania, Estonia, Czech Republic, Brazil, Russia, India and China) evince long-range dependence or the random walk hypothesis. In this paper, the Hurst exponent as calculated by R/S fractal analysis and Detrended Fluctuation Analysis is our measure of long-range dependence in the series. The results reinforce our previous findings and suggest that if stock returns present long-range dependence, the random walk hypothesis is not valid anymore and neither is the market efficiency hypothesis.

scholarly journals Weak Form Efficiency of the Amman Stock Exchange: An Empirical Analysis (2000-2013)

2015 ◽  
Vol 11 (1) ◽  
pp. 173 ◽  
Author(s):  
Izz eddien N. Ananzeh
Keyword(s):  
Financial Markets ◽  
Stock Returns ◽  
Stock Prices ◽  
Stock Exchange ◽  
Weak Form ◽  
Efficient Market Hypothesis ◽  
Final Conclusion ◽  
Clear Cut ◽  
Amman Stock Exchange ◽  
Daily Returns

<p>The Efficient Market Hypothesis (EMH) has been a lot of debates in the literature of finance because of its important implication, and there is no clear-cut case regarding the efficiency of the financial markets for both developed and emerging markets. This empirical study conducted to examine EMH at the weak form level of Amman stock Exchange (ASE) by using daily observations for the period span from 2000 to 2013. Recent econometric procedures utilized for testing the randomness of stock prices for ASE. The results of serial correlation reject the existence of random walks in daily returns of the ASE, and the unit root tests also conclude the return series of ASE are stationary and inefficient at the weak-level. Also the runs tests verify that the stock returns series on ASE are not random, and our final conclusion reports that the ASE is inefficient at the weak form level. </p>

scholarly journals Behaviour of Stock Returns in the KLSE: A Test of the Random Walk Hypothesis

2020 ◽  
Author(s):  
Ahmadu Umaru Sanda ◽  
Abdul Ghani Shafie ◽  
G.S Gupta
Keyword(s):  
Random Walk ◽  
Stock Market ◽  
Stock Returns ◽  
Stock Exchange ◽  
Technical Analysis ◽  
Kuala Lumpur ◽  
Random Walk Hypothesis ◽  
Serial Correlations ◽  
Random Walk Theory

A sample of 224 companies listed in the Kuala Lumpur Stock Exchange was taken for the period 1991-96. The serial correlations tests of varying lags and the runs tests were employed to test for the random walk theory. The bulk of the results tilts towards the rejection of non-randomness, lending weight to the argument that the stock market has no memory, and casting doubt upon the usefulness of technical analysis.  

Testing Random Walk Hypothesis in Turkish Foreign Exchange Market

2015 ◽  
pp. 51-63
Author(s):  
Levent Çıtak ◽  
Veli Akel ◽  
Murat Çetin
Keyword(s):  
Exchange Rate ◽  
Random Walk ◽  
Foreign Exchange ◽  
Foreign Exchange Market ◽  
Weak Form ◽  
Efficient Market Hypothesis ◽  
Ratio Test ◽  
Exchange Market ◽  
Developed Economies ◽  
Random Walk Hypothesis

This chapter revisits the empirical validity of the weak-form efficient market hypothesis for Turkish foreign exchange markets. The random-walk hypothesis in foreign-exchange rates market is one of the most researched areas, particularly in developed economies. This chapter applies ADF and PP unit root test, Lo and MacKinlay's (1988) conventional variance ratio test and Ljung-Box Q tests to examine the validity of the random-walk hypothesis in the Turkish foreign-exchange market. The chapter utilizes weekly nominal TRY/USD exchange rate for data from January 2000 to December 2013. The results provide evidence rejecting the random walk hypothesis for weekly nominal exchange rate series.

scholarly journals The Random Walk Theory And Stock Prices: Evidence From Johannesburg Stock Exchange

2014 ◽  
Vol 13 (6) ◽  
pp. 1241 ◽  
Author(s):  
Tafadzwa T. Chitenderu ◽  
Andrew Maredza ◽  
Kin Sibanda
Keyword(s):  
Random Walk ◽  
Stock Prices ◽  
Stock Exchange ◽  
Arima Model ◽  
Weak Form ◽  
Ratio Test ◽  
Random Walk Process ◽  
Random Walk Hypothesis ◽  
Johannesburg Stock Exchange ◽  
Random Walk Theory

In this paper, we test the Johannesburg Stock Exchange market for the existence of the random walk hypothesis using monthly time series of the All Share Index (ALSI) covering the period 2000 2011. Traditional methods, such as unit root tests and autocorrelation test, were employed first and they all confirmed that during the period under consideration, the JSE price index followed the random walk process. In addition, the ARIMA model was constructed and it was found that the ARIMA (1, 1, 1) was the model that most excellently fitted the data in question. Furthermore, residual tests were performed to determine whether the residuals of the estimated equation followed a random walk process in the series. The authors found that the ALSI resembles a series that follow random walk hypothesis with strong evidence of a wide variance between forecasted and actual values, indicating little or no forecasting strength in the series. To further validate the findings in this research, the variance ratio test was conducted under heteroscedasticity and resulted in non-rejection of the random walk hypothesis. It was concluded that since the returns follow the random walk hypothesis, it can be said that JSE, in terms of efficiency, is on the weak form level and therefore opportunities of making excess returns based on out-performing the market is ruled out and is merely a game of chance.

scholarly journals STOCK MARKET EFFICIENCY IN AFRICA: EVIDENCE FROM RANDOM WALK HYPOTHESIS

2020 ◽  
Author(s):  
Rui Dias ◽  
◽  
Hortense Santos ◽  
Keyword(s):  
Random Walk ◽  
Financial Markets ◽  
Stock Markets ◽  
Weak Form ◽  
Efficient Market Hypothesis ◽  
Random Walk Hypothesis ◽  
Global Pandemic ◽  
Stock Market Efficiency ◽  
Variance Ratios ◽  
The Mean

This paper aims to test the efficient market hypothesis, in its weak form, in the stock markets of BOTSWANA, EGYPT, KENYA, MOROCCO, NIGERIA and SOUTH AFRICA, in the period from September 2, 2019 to September 2, 2020. In order to achieve this analysis, we intend to find out if: the global pandemic (Covid-19) has decreased the efficiency, in its weak form, of African stock markets? The results therefore support the evidence that the random walk hypothesis is not supported by the financial markets analyzed in this period of global pandemic. The values of variance ratios are lower than the unit, which implies that the yields are autocorrelated in time and, there is reversal to the mean, and no differences were identified between the stock markets analyzed. The authors consider that the results achieved are of interest to investors looking for opportunities for portfolio diversification in these regional stock markets.

scholarly journals Testing Weak Form of Market Efficiency of DSE Based on Random Walk Hypothesis Model: A Parametric Test Approach

2019 ◽  
Vol 9 (1) ◽  
pp. 400
Author(s):  
Ahmed Raihan Sadat ◽  
Md. Emran Hasan
Keyword(s):  
Random Walk ◽  
Market Efficiency ◽  
Stock Exchange ◽  
Weak Form ◽  
Data Series ◽  
Ratio Test ◽  
Random Walk Hypothesis ◽  
Hypothesis Model ◽  
Augmented Dickey Fuller ◽  
Tests For Normality

Stock market is one great indicator of any country’s economic condition. Hence, measuring the capital market in different forms has always been a great interest to finance researchers. This paper measures the market efficiency and randomness of Dhaka stock Exchange (DSE) in weak form employing daily observations (return) from two comparatively new ventured indices viz. DS30 and DSEX. Initially, the study tests for normality using Jarque-Bera test of normality and found data series are not normally distributed. Later, some widely used parametric tests were conducted to examine the historic price dependencies or to examine the random walk hypothesis (RWH) of DSE indices. Augmented Dickey-Fuller test (ADF), Autocorrelation function (ACF), and variance ratio test (Lo & MacKinlay) were used and all of the results suggested DSE to be not efficient in weak form. Meaning, prices of DSE do not follow a random walk.

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