Welcome to Scribd, the world's digital library. Read, publish, and share books and documents. See more
Download
Standard view
Full view
of .
Look up keyword
Like this
1Activity
0 of .
Results for:
No results containing your search query
P. 1
Evaluation of Daily Return Behavior of Tehran Stock Exchange (TSE)

Evaluation of Daily Return Behavior of Tehran Stock Exchange (TSE)

Ratings: (0)|Views: 30|Likes:
Published by xaxif8265
An efficient market is a market that immediately affects securities price. Efficiency
of stock exchange can give rise to optimized allocation of resources, hence it is very
important. Objective of this survey is to study daily return behavior of Tehran Stock
Exchange in order to confirm or reject market efficiency at weak level. In literature of this
survey whenever daily return of stock exchange follows random walk theory during the
time, then efficiency of the stock exchange will be confirmed on weak form efficiency. The
studying time period of this survey is from 2005-2010. Serial correlation analysis and unit
root using the augmented Dicky-Fuller test are used in this survey. Results demonstrate that
daily return behavior of Tehran Stock Exchange does not follow random walk theory
during the above time period and this means rejection of the research hypothesis, i.e.
rejection of weak form efficiency in Tehran Stock Exchange.
An efficient market is a market that immediately affects securities price. Efficiency
of stock exchange can give rise to optimized allocation of resources, hence it is very
important. Objective of this survey is to study daily return behavior of Tehran Stock
Exchange in order to confirm or reject market efficiency at weak level. In literature of this
survey whenever daily return of stock exchange follows random walk theory during the
time, then efficiency of the stock exchange will be confirmed on weak form efficiency. The
studying time period of this survey is from 2005-2010. Serial correlation analysis and unit
root using the augmented Dicky-Fuller test are used in this survey. Results demonstrate that
daily return behavior of Tehran Stock Exchange does not follow random walk theory
during the above time period and this means rejection of the research hypothesis, i.e.
rejection of weak form efficiency in Tehran Stock Exchange.

More info:

Published by: xaxif8265 on Sep 22, 2011
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as PDF, TXT or read online from Scribd
See more
See less

09/22/2011

pdf

text

original

 
International Bulletin of Business AdministrationISSN: 1451-243X Issue 11 (2011)© EuroJournals, Inc. 2011http://www.eurojournals.com102
Evaluation of Daily Return Behavior of Tehran StockExchange (TSE)
Seyed Reza Miraskari
 Department of Economics, Isfahan University, Iran
E-mail: R.Miraskari@yahoo.comTel: +98-936-9063036
Mehrdad Zolfalizadeh
 Department of Accounting, Isfahan University, Iran
E-mail: Mehrdad_Z1986@yahoo.comTel: +98-911-2369328
Ashraf Jafari
 Department of Accounting, Islamic Azad University South Tehran Branch, Iran
E-mail: Jafari_Ashraf@yahoo.comTel: +98-912-7933598
Abstract
An efficient market is a market that immediately affects securities price. Efficiencyof stock exchange can give rise to optimized allocation of resources, hence it is veryimportant. Objective of this survey is to study daily return behavior of Tehran Stock Exchange in order to confirm or reject market efficiency at weak level. In literature of thissurvey whenever daily return of stock exchange follows random walk theory during thetime, then efficiency of the stock exchange will be confirmed on weak form efficiency. Thestudying time period of this survey is from 2005-2010. Serial correlation analysis and unitroot using the augmented Dicky-Fuller test are used in this survey. Results demonstrate thatdaily return behavior of Tehran Stock Exchange does not follow random walk theoryduring the above time period and this means rejection of the research hypothesis, i.e.rejection of weak form efficiency in Tehran Stock Exchange.
Keywords:
Tehran Stock Exchange, Capital Market Efficiency, Random Walk Theory,Serial Correlation Test, Unit Root Using The Augmented Dicky-Fuller Test.
1. Introduction
The main task of stock exchange is optimized allocation of scarce financial resources that beingefficient is the necessity to obtain this goal. Stock exchange efficiency has a close relationship withexistent information in the market and rapid and timely reflection of information on securities prices.Price of securities in such market is closed to its inherent value. In fact in case of efficiency of thecapital market, prices of securities are a suitable replacement for their inherent value and these pricesare appropriate signs for resource allocation.
 
 103Given to above issues the main case in this survey is to determine the amount and level of efficiency by means of Tehran Stock Exchange (TSE) index. In order to study the efficiency of TehranStock Exchange in this survey we have used serial correlation test and unit root using the augmentedDicky-Fuller test which have numerous applications in researches of efficiency ground. Thus we try inthe following to represent the total framework of research by reviewing of literature, background of previous researches and describing of research hypothesis and objectives. Afterwards data analysis isdone and conclusion and necessary recommendations will be offered.
2. Research Literature
Subject of stock exchange efficiency is one of the most important subjects of the world great marketsat present. An efficient market is a market in which the existent information affects securities pricesimmediately. Concept of an efficient market presumes that in dealing decisions investors consider allthe related information in stock prices. Therefore, the current stock prices include all previousinformation (like the profit related to the previous season or year) and current information. Necessaryconditions to establish an efficient stock exchange have been stated as the following:1)
 
Easiness of progress and rapid access to information in the market in a complete form foreveryone2)
 
Balance between risk and return3)
 
Determining of the securities price based on supply and demand forces4)
 
Lack of severe difference between securities price and their inherent value5)
 
Liquidity capability of the market6)
 
Individual inability to one-sided change of prices (Rao, 1989)Indeed these characteristics are the result of the whole competitive market that are appearedbecause of high similarity of securities transactions to the whole competitive market. So, high degreeof efficiency is the result of high degree of closeness of securities' market transactions and wholecompetitive market.Efficiency of the capital market has various dimensions that will be referred in the following.1-
 
Information efficiency: by information efficiency we mean that all individuals have accessto information and it will affect securities price immediately.2-
 
Allocative efficiency: the capital market enjoys allocative efficiency when it could investthe existent capitals in plans or companies that offer more return (proportional to risk).3-
 
Operational efficiency: markets that have higher operational efficiency enjoy more speedand easiness in transactions and transactional costs are at the lowest level. This kind of efficiency is leaded to increase the speed of assets' liquidity (Tehrani, 2009).If there are essential conditions for existence of an efficient market this question is proposedthat how much of efficiency is considered. Also it should be noted that the major criterion in evaluationof market's efficiency level is information which has grades and degrees by itself. According to thisthere are three levels of information efficiency that will be stated briefly.Weak form of an efficient market: information related to previous prices has no impact onevaluation of future changes of prices and the current prices don't reflect the past trend. As a result it isnot possible to achieve a better prediction of future trend of prices by analyzing of previous movementsof prices. In this state, securities prices don't have historical memory and technical analyses have littleapplication.Semi-strong form efficiency: the current information is a perfect reflection of publishedinformation related to each of the securities and the investor can't obtain more return by analyzing of this information. Applying of basic analyses won't be effective in this state too. In other words byshowing reaction towards audit reports, financial statements, accounting profit, announcing of eachshare's profit, announcing of each share's distributed profit, stock analysis and etc we can't obtain ahigher investment rate of return.
 
 104Strong form efficiency: it is the strongest form of an efficient market in which stock prices aretotally influenced by information such as public and private information. In this state that the market isefficient in terms of qualitative information, applying of internal information won't be leaded to higherrate of return (Shariat Panahi, 2010).Inefficiency of the market, in general will create many problems for all beneficiaries of themarket. One of the important factors in market efficiency is existence of whole competitive conditions,so inefficiency is leaded to creating of non-competitive conditions and consequently unoptimizedallocation of resources. Also inefficiency of the stock exchange is leaded to encountering of manyaccepted companies in the stock exchange with problems and challenges in their financial supplyprocess. This point that the necessity to obtain an optimized level of desirability for investors isexistence of an efficient market is the motivation to perform this survey. Thus this question is proposedthat can investors of Tehran Stock Exchange achieve the optimized desirability? Or in other wordsdoes Tehran Stock Exchange efficient?
3. Objective of Research
Generally the objective of this research could be stated as studying of behavior of stock prices andinvestors about communities' decisions in order to measure efficiency degree of Tehran Stock Exchange that is stated as below:"Evaluation of daily return of Tehran Stock Exchange to confirm or reject market efficiency atweak level".
4. Research Background
The issue of capital market efficiency has been considered since sixth decade of the twentieth centuryand by appearing of "chartists" and "inherent value analysts" and representation of their views. Mostresearchers paid due attention to efficiency of different goods markets in the first half of the twentiethcentury and most of them showed efficiency of these markets. In sixth decade of the twentieth centuryfew researches were done about the efficiency of the capital market by means of serial correlationmethods and run tests. Price indexes had been studied in most of such researches, so evidences aboutmarket efficiency were represented. Fama, one of the famous clear-sighted in this regard studiedtheories related to capital market efficiency in the seventh decade of the twentieth century by offeringof three models of Fair Game, Sub Martingale and Random Flow Model. After that various methodswere offered to test market efficiency (namazi and shushtarian, 1997). At the end of the seventh decadeother methods such as moving average, quadratic predicting model and moving weighted averageplayed an important role in tests related to market efficiency.Studying of securities market efficiency until twentieth century was focused on New York stock exchange and other stocks in America and London stock exchange. Afterwards range of thesestudies were extended to other stock exchanges in the world because of the importance that efficiencyof these markets had in microeconomics policies and economic growth and development. Moreover,efficiency testing methods were improved and researchers tried to apply new statistical andunstatistical methods, so that efficiency tests of stock exchange market entered a new phase at the endof the twentieth century through applying of neural network techniques, resistance level, nonlinearcorrelation, self-returned vector, multi-variable tests and proposing of predictability of severe andsudden changing degree of prices. Most of the performed studies during this period showedinefficiency of securities market. In the following a number of stock exchange efficiency tests insideand outside of the country will be represented (namazi and shushtarian, 1997).Guidi, Gupta et al (2010) have studied the assumptions of an efficient market in Eastern andCentral Europe's stock exchange during 1999-2009 in a research about studying of weak formefficiency in Eastern and Central Europe markets. They used three tests of autocorrelation analysis,

You're Reading a Free Preview

Download
scribd
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->