scholarly journals TESTING THE EMPIRICS OF WEAK FORM OF EFFICIENT MARKET HYPOTHESIS: EVIDENCE FROM LAC REGION MARKETS

2020 ◽  
Author(s):  
Hortense Santos ◽  
◽  
Rui Dias ◽  
Paula Heliodoro ◽  
Paulo Alexandre ◽  
...  
Keyword(s):  
Random Walk ◽  
Financial Markets ◽  
Weak Form ◽  
Fluctuation Analysis ◽  
Linear Component ◽  
Test Results ◽  
Random Walk Hypothesis ◽  
Regional Markets ◽  
Two Samples ◽  
Non Linear

The new coronavirus disease (Covid-19) evolved quickly from a regional health outbreak to a global collapse, stopping the global economy in a unprecedented way, creating uncertainty and chaos in the financial markets. Based on these events, it is intended in this paper to test the persistence of profitability in the financial markets of Argentina, Brazil, Chile, Colombia, Peru and Mexico, in the period between January 2018 to July 2020. In order to perform this analysis where undertaken different approaches in order to analyze if: (i) the financial markets of Latin America are efficient in their weak-form during the global pandemic (Covid-19)? ii) If so, the persistent long memories cause risks between these regional markets? The results suggest that the returns don’t follow the i.i.d. hypothesis, from dimension 2, reinforcing the idea that returns of stock indexes have a non-linear nature or a significant non-linear component, exception made to the Argentina market, which was expected in virtue of the Ljung-Box (with the return squares) test results, and ARCH-LM. Corroborating the exponents Detrended Fluctuation Analysis (DFA), indicate the presence of persistent long memories, namely into the following markets: Colombia (0.72), Chile (0.66), Brazil (0.58) and Peru (0.57). The Argentina market does not reject the random walk hypothesis, while the Mexican market suggests some anti-persistence (0.41). This situation has implications for investors, once that some returns can be expected, creating arbitration opportunities and abnormal income, contrary to the supposed from the random walk hypothesis and information efficiency. The t-test results of the heteroscedasticity form the two samples suggest that there is no risk transmission between these regional markets, with the exception to the BOVESPA / BOLSAA MX markets, that is, the existence of persistent long memories in the returns does not imply the risk transmission between markets. These finds allow the creation of strategies of diversification inefficient portfolios. These conclusions also open space for the market regulators to implement measures that guarantee a better informational information of these regional markets.

scholarly journals TESTING THE EMPIRICS OF WEAK FORM OF EFFICIENT MARKET HYPOTHESIS: EVIDENCE FROM LAC REGION MARKETS

2020 ◽  
Author(s):  
Hortense Santos ◽  
◽  
Rui Dias ◽  
Paula Heliodoro ◽  
Paulo Alexandre ◽  
...  
Keyword(s):  
Random Walk ◽  
Financial Markets ◽  
Weak Form ◽  
Fluctuation Analysis ◽  
Linear Component ◽  
Test Results ◽  
Random Walk Hypothesis ◽  
Regional Markets ◽  
Two Samples ◽  
Non Linear

The new coronavirus disease (Covid-19) evolved quickly from a regional health outbreak to a global collapse, stopping the global economy in a unprecedented way, creating uncertainty and chaos in the financial markets. Based on these events, it is intended in this paper to test the persistence of profitability in the financial markets of Argentina, Brazil, Chile, Colombia, Peru and Mexico, in the period between January 2018 to July 2020. In order to perform this analysis where undertaken different approaches in order to analyze if: (i) the financial markets of Latin America are efficient in their weak-form during the global pandemic (Covid-19)? ii) If so, the persistent long memories cause risks between these regional markets? The results suggest that the returns don’t follow the i.i.d. hypothesis, from dimension 2, reinforcing the idea that returns of stock indexes have a non-linear nature or a significant non-linear component, exception made to the Argentina market, which was expected in virtue of the Ljung-Box (with the return squares) test results, and ARCH-LM. Corroborating the exponents Detrended Fluctuation Analysis (DFA), indicate the presence of persistent long memories, namely into the following markets: Colombia (0.72), Chile (0.66), Brazil (0.58) and Peru (0.57). The Argentina market does not reject the random walk hypothesis, while the Mexican market suggests some anti-persistence (0.41). This situation has implications for investors, once that some returns can be expected, creating arbitration opportunities and abnormal income, contrary to the supposed from the random walk hypothesis and information efficiency. The t-test results of the heteroscedasticity form the two samples suggest that there is no risk transmission between these regional markets, with the exception to the BOVESPA / BOLSAA MX markets, that is, the existence of persistent long memories in the returns does not imply the risk transmission between markets. These finds allow the creation of strategies of diversification inefficient portfolios. These conclusions also open space for the market regulators to implement measures that guarantee a better informational information of these regional markets.

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 Efficiency of Asean-5 Markets: An Detrended Fluctuation Analysis

2020 ◽  
Vol 12 (2) ◽  
pp. 13-19
Author(s):  
Rui Dias ◽  
Paula Heliodoro ◽  
Paulo Alexandre
Keyword(s):  
Random Walk ◽  
Financial Markets ◽  
Stock Prices ◽  
Detrended Fluctuation Analysis ◽  
Abnormal Returns ◽  
Weak Form ◽  
The Philippines ◽  
Fluctuation Analysis ◽  
Chinese Market ◽  
Detrended Fluctuation

This study intends to analyse efficiency, in its weak form, in the financial markets of Indonesia, Malaysia, Philippines, Singapore, Thailand (ASEAN-5), and China, during the global pandemic (Covid-19). Different approaches have been undertaken to carry out this analysis in order to determine whether: (i) ASEAN-5 financial markets and China are efficient, in their weak form, during the analysis period? The results indicate that the random walk hypothesis is rejected in all markets. The values of the variance ratios are, in all cases, lower than the unit, which implies that the returns are autocorrelated over time and, there is a reversion to the average, in all indices. In corroboration, the exponents Detrended Fluctuation Analysis (DFA), indicate significant long memories with a larger incidence in the Philippines and Singapore markets, however the Chinese market evidences anti persistence. These results demonstrate that stock prices do not completely reflect the available information and that stock prices movements are not i.i.d. This has implications for investors, as some returns can be expected, creating opportunities for arbitrage and abnormal returns, contrary to the assumptions of random walk and information efficiency. These conclusions also allow market regulators to implement measures to ensure better information in these regional markets.

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

FINANCIAL MARKET INTEGRATION OF ASEAN-5 WITH CHINA: AN ECONOPHYSICS APPROACH

2020 ◽  
Author(s):  
Rui Dias ◽  
◽  
Paula Heliodoro ◽  
Paulo Alexandre ◽  
Cristina Vasco ◽  
...  
Keyword(s):  
Stock Market ◽  
Financial Markets ◽  
Market Integration ◽  
Open Space ◽  
Financial Integration ◽  
Weak Form ◽  
International Markets ◽  
Portfolio Diversification ◽  
Stock Market Crash ◽  
Regional Markets

The main objective of this research is to estimate whether portfolio diversification is feasible in the financial markets of Indonesia, Malaysia, Philippines, Singapore and Thailand (ASEAN-5), and the market of China, in the context of the stock market crash in China in 2015. The purpose is to answer two questions, namely whether: (i) has the stock market crash in China increased financial integration in the ASEAN-5 financial markets and China? (ii) If the presence of long memories may put in question the diversification of portfolios? The results suggest that these markets are segmented, except for Malaysia/Singapore, bi-directional, and China/Filipinas, pre-crash. However, when analysing the stock market crash period, the results indicate 16 integrated market pairs with structure breakdown (in 30 possible). When compared with the previous sub-period it was found that during the stock market crash the level of financial integration increased significantly (533%). In the post-crash period, there were right integrated market pairs with broken structure. When compared to the crash period, the level of integration decreased in 50%. In addition, we observed that during the stock market crash these Asian markets did not have long memories, except for the Malaysian market, which reveals some predictability, that is, the increase in integration does not lead to persistence in these Asian markets. In conclusion, the ASEAN-5 markets and China mostly exhibit strong signs of efficiency in their weak form. The authors consider that the implementation of portfolio diversification strategies is beneficial for investors. These conclusions also open space for market regulators to take action to ensure better information between these regional markets and international markets.

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 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.

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