scholarly journals Random walks and market efficiency tests: evidence on US, Chinese and European capital markets within the context of the global Covid-19 pandemic

2020 ◽  
Vol 11 (4) ◽  
pp. 585-608
Author(s):  
Rui Dias ◽  
Nuno Teixeira ◽  
Veronika Machova ◽  
Pedro Pardal ◽  
Jakub Horak ◽  
...  
Keyword(s):  
Random Walk ◽  
Market Efficiency ◽  
Capital Markets ◽  
Global Economy ◽  
Structural Breaks ◽  
Abnormal Returns ◽  
Value Added ◽  
Weak Form ◽  
Efficient Market Hypothesis ◽  
Random Walk Hypothesis

Research background: Covid-19 has affected the global economy and has had an inevitable impact on capital markets. In the week of February 24?28, 2020, stock markets crashed. The index FTSE 100 decreased 13%, while the indices DJIA and S&P 500 fell 11?12%, the biggest drop since the 2007?2008 financial and economic crisis. It is therefore of interest to test the random walk hypothesis in developed capital markets, European and also non-European, in order to understand the different predictabilities between them. Purpose of the article: The aim is to analyze capital market efficiency, in its weak form, through the stock market indices of Belgium (index BEL 20), France (index CAC 40), Germany (index DAX 30), USA (index DOW JONES), Greece (index FTSE Athex 20), Spain (index IBEX 35), Ireland (index ISEQ), Portugal (index PSI 20) and China (index SSE) for the period from December 2019 to May 2020. Methods: Panel unit root tests of Breitung (2000), Levin et al. (2002) and Hadri (2002) were used to assess the time series stationarity. The test of Clemente et al. (1998) is used to detect structural breaks. The tests for the random walk hypothesis follows the variance ratio methodology proposed by Lo and MacKinlay (1988). Findings & Value added: In general, we found mixed confirmation about the EMH (efficient market hypothesis). Taking into account the conclusions of the rank variance test, the random walk hypothesis was rejected in the case of stock indices: Dow Jones, SSE and PSI 20, partially rejected in the case indices: BEL 20, CAC 40, FTSTE Athex 20 and DEX 30, but accepted for indices: IBEX 35 and ISEQ. The results also show that prices do not fully reflect the information available and that changes in prices are not independent and identically distributed. This situation has consequences for investors, since some returns can be expected, creating opportunities for arbitrage and for abnormal returns, contrary to the assumptions of random walk and information efficiency.

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 Testing financial market efficiency

2014 ◽  
Vol 3 (3) ◽  
pp. 351-372
Author(s):  
Islem Ahmed Boutabba
Keyword(s):  
Random Walk ◽  
Financial Markets ◽  
Stock Prices ◽  
Abnormal Returns ◽  
Weak Form ◽  
Efficient Market Hypothesis ◽  
Central Hypothesis ◽  
Excess Volatility ◽  
Fama And French ◽  
Efficiency Hypothesis

Since the birth of the financial literature until the 1970s, the efficient market hypothesis has been regarded as a central hypothesis. In the mid-1970s, there were theoretical and empirical evidence stating that the EMH seems untouchable. However, recently there has been an emergence of arguments doubting the EMH. The EMH implicitly indicates that stock prices can follow a random walk. Currently, financial theory has shown that stock prices do not follow a random walk.In this regard, our empirical study rejected the hypothesis of a random walk for 27 indices out of 28 studied. We confirm that the studied indices time series do not follow a random walk, and therefore we reject the financial markets efficiency hypothesis in its weak form. This result corroborates those of Fama and French (1992.993), DeBondt and Thaler (1985), Lo and MacKinlay (1991), Jagadeesh and Titman (1993) and Shleifer and Vishny (1997). Therefore, financial markets efficiency hypothesis in its weak form is also rejected. This result is logical given the limited capacity of the classical theory in explaining abnormal returns such as bubbles, crashes and excess volatility

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 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 Weak Form Efficiency In Indian Stock Markets

2011 ◽  
Vol 6 (3) ◽  
Author(s):  
Rakesh Gupta ◽  
Parikshit K. Basu
Keyword(s):  
Random Walk ◽  
Emerging Markets ◽  
Market Efficiency ◽  
Equity Markets ◽  
Weak Form ◽  
Random Walk Model ◽  
Important Concept ◽  
Random Walk Hypothesis ◽  
International Boundaries ◽  
Weak Form Efficiency

Hypothesis of Market Efficiency is an important concept for the investors who wish to hold internationally diversified portfolios. With increased movement of investments across international boundaries owing to the integration of world economies, the understanding of efficiency of the emerging markets is also gaining greater importance. In this paper we test the weak form efficiency in the framework of random walk hypothesis for the two major equity markets in India for the period 1991 to 2006. The evidence suggests that the series do not follow random walk model and there is an evidence of autocorrelation in both markets rejecting the weak form efficiency hypothesis.

scholarly journals THE EFFICIENT MARKET HYPOTHESIS: A CRITICAL REVIEW OF LITERATURE AND METHODOLOGY

Ekonomika ◽  
2014 ◽  
Vol 93 (2) ◽  
pp. 7-23 ◽  
Author(s):  
Augustas Degutis ◽  
Lina Novickytė
Keyword(s):  
Stock Market ◽  
Market Efficiency ◽  
Capital Markets ◽  
Intrinsic Value ◽  
Weak Form ◽  
Efficient Market Hypothesis ◽  
Current Status ◽  
Efficient Market ◽  
Baltic Countries ◽  
The Baltic

The development of the capital markets is changing the relevance and empirical validity of theefficient market hypothesis. The dynamism of capital markets determines the need for efficiency research. The authors analyse the development and the current status of the efficient market hypothesis with an emphasis on the Baltic stock market. Investors often fail to earn an excess profit, but yet stock market anomalies are observed and market prices often deviate from their intrinsic value. The article presents an analysis of the concept of efficient market. Also, the market efficiency evolution is reviewed and its current status is analysed. This paper presents also an examination of stock market efficiency in the Baltic countries. Finally, the research methods are reviewed and the methodology of testing the weak-form efficiency in a developing market is suggested. 

scholarly journals Testing financial market efficiency

2014 ◽  
Vol 4 (2) ◽  
pp. 548-563
Author(s):  
Islem Boutabba
Keyword(s):  
Random Walk ◽  
Financial Markets ◽  
Stock Prices ◽  
Abnormal Returns ◽  
Weak Form ◽  
Efficient Market Hypothesis ◽  
Central Hypothesis ◽  
Excess Volatility ◽  
Fama And French ◽  
Efficiency Hypothesis

Since the birth of the financial literature until the 1970s, the efficient market hypothesis has been regarded as a central hypothesis. In the mid-1970s, there were theoretical and empirical evidence stating that the EMH seems untouchable. However, recently there has been an emergence of arguments doubting the EMH. The EMH implicitly indicates that stock prices can follow a random walk. Currently, financial theory has shown that stock prices do not follow a random walk. In this regard, our empirical study rejected the hypothesis of a random walk for 27 indices out of 28 studied. We confirm that the studied indices time series do not follow a random walk, and therefore we reject the financial markets efficiency hypothesis in its weak form. This result corroborates those of Fama and French (1992.993), DeBondt and Thaler (1985), Lo and MacKinlay (1991), Jagadeesh and Titman (1993) and Shleifer and Vishny (1997). Therefore, financial markets efficiency hypothesis in its weak form is also rejected. This result is logical given the limited capacity of the classical theory in explaining abnormal returns such as bubbles, crashes and excess volatility.

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 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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