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 Testing Weak-Form Market Efficiency of Dhaka Stock Exchange

2015 ◽  
Vol 4 (2) ◽  
pp. 79-90
Author(s):  
Md.‬ Abu Hasan‬‬‬‬‬‬‬‬
Keyword(s):  
Random Walk ◽  
Stock Market ◽  
Stock Prices ◽  
Stock Exchange ◽  
Weak Form ◽  
Jel Classification ◽  
Ratio Test ◽  
Daily Return ◽  
Classification Code ◽  
Augmented Dickey Fuller

Measuring the efficiency of the stock market is an important research topic as there are various implications for investors. This paper investigates the weak form efficiency in the framework of the random walk hypothesis for the stock market in Bangladesh, employing both Non Parametric tests (Runs test and Phillips-Perron test) and Parametric tests (Autocorrelation test, Augmented Dickey-fuller test, and Variance Ratio test). The study uses daily return data for the three stock indices of Dhaka Stock Exchange such as DSI (from 02 January 1993 to 27 January 2013) with a total of 4823 daily return observations, DGEN (from 01 January 2002 to 31 July 2013) with a total of 2903 daily return observations, and DSE-20 (from 01 January 2001 to 27 January 2013) with a total of 3047 daily return observations. The evidence suggests that all the return series do not follow the random walk model, and thus the Dhaka Stock Exchange is inefficient in weak form. Thus, historical stock prices can be used to achieve superior gains from the stock markets in Bangladesh. JEL Classification Code: C22, G10, G14

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 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.

scholarly journals How efficient is the Johannesburg Stock Exchange really?

2018 ◽  
Vol 21 (1) ◽  
Author(s):  
André Heymans ◽  
Leonard Santana
Keyword(s):  
Stock Exchange ◽  
Weak Form ◽  
Active Management ◽  
Sign Test ◽  
Management Approach ◽  
Ratio Test ◽  
Variance Ratio ◽  
Johannesburg Stock Exchange ◽  
Portfolio Managers ◽  
The Impact

Background: There are various studies that confirm the efficiency of the Johannesburg Stock Exchange (JSE), implying that there are no opportunities for active portfolio managers to earn excess returns over the long run.Aim: The aim of the research is to prove that the sub-indices on the JSE go through cycles of efficiency and inefficiency even though the JSE as a whole might be considered informationally efficient.Setting: Although the JSE as a whole can be considered to be weak-form efficient, portfolio managers are not bound to investing in large liquid stocks alone. Many aggressive funds allow managers to also allocate a portion of their portfolio to smaller stocks. This has implications when considering the efficiency of the stocks being selected.Methods: Given the impact efficiency has on portfolio selection, we test for the adaptive market hypothesis using a representative sample of stock indices by means of the automatic variance ratio test, the Chow–Denning joint variance ratio and the joint sign test on the JSE.Results: Our results confirm that some of the smaller, and in some instances younger, indices are not always as efficient as the all share index, thus allowing portfolio managers with an active management approach some opportunities to profit from informational inefficiencies in the market.Conclusion: The practice of active management by portfolio managers in the South African market seems to defy logic if one considers the fact that the JSE as a whole is at the very least weak-form efficient. By proving that some of the sub-indices that make up the all share index are inefficient most of the time, this article shows that the phenomenon of active portfolio managers is less of a surprise.

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.

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 Testing for Weak-Form Market Efficiency in the Botswana Stock Market

2019 ◽  
Vol 7 (9) ◽  
pp. 134-140
Author(s):  
Mphoeng Mphoeng
Keyword(s):  
Random Walk ◽  
Stock Market ◽  
Market Efficiency ◽  
Stock Exchange ◽  
Weak Form ◽  
Efficient Market Hypothesis ◽  
Random Walk Process ◽  
Efficient Market ◽  
Foreign Companies ◽  
Domestic Companies

The theory of the Efficient Market Hypothesis (EMH) has been debated extensively. In this study the runs test was employed on the Botswana Stock Exchange daily Domestic Companies and Foreign Companies indices to test whether the Botswana stock market follows the random walk process and subsequently determine weak-form market efficiency. The results of the runs test showed that the indices do not follow the random walk process. As a result the Botswana stock market is determined to be weak-form market inefficient and rejects the efficient market hypothesis accordingly.

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 An Empirical Investigation of the Random Walk Hypothesis in the Nigerian Stock Market

2021 ◽  
Vol 4 (1) ◽  
pp. 62-77
Author(s):  
DA Kuhe ◽  
J Akor
Keyword(s):  
Random Walk ◽  
Stock Market ◽  
Stock Returns ◽  
Unit Root ◽  
Stock Prices ◽  
Null Hypothesis ◽  
Serial Correlation ◽  
Ratio Test ◽  
Variance Ratio ◽  
Random Walk Hypothesis

The Random Walk Hypothesis (RWH) states that stock prices move randomly in the stock market without following any regular or particular pattern and as such historical information contained in the past prices of stocks cannot be used to predict current or future stock prices. Hence, stock prices are unpredictable and that investors cannot usurp any available information in the market to manipulate the market and make abnormal profits. This study empirically examines the random walk hypothesis in the Nigerian stock market using the daily quotations of the Nigerian stock exchange from 2nd January, 1998 to 31st December, 2019. The study employs Augmented Dickey-Fuller unit root test, the random walk model, Ljung-Box Q-statistic test for serial dependence, runs test of randomness, and the robust variance ratio test as methods of analyses. The result of the study rejected the null hypotheses of a unit root and random walk in the stock returns. The null hypothesis of no serial correlation in the residuals of stock returns was also rejected indicating the presence of serial correlation/autocorrelation in the residual series. The result of the runs test rejected the null hypothesis of randomness in the Nigerian stock returns. The results of the variance ratio test under homoskedasticity and heteroskedasticity assumptions both strongly rejected the null hypothesis of a random walk for both joint tests and test of individual periods. Based on the results of the four tests applied in this study, it is concluded that the Nigerian daily stock returns under the period of investigation do not follow a random walk and hence the null hypothesis of a random walk is rejected. The results of the study further revealed that the Nigerian stock market is weak-form inefficient indicating that prices in the Nigerian stock market are predictable, dependable, consistently mispriced, inflated, liable to arbitraging and left unprotected to speculations and market manipulations. The study provided some policy recommendations

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