Summary Literature Review | Autocorrelation | Statistical Hypothesis Testing



The Literature Review Weak Form of Market Efficiency
Submitted To:
Dr. Pankajray Patel

Submitted By:
Prof. Nikunj Patel

Pacific Academy of Higher Education and Research University

K.S.Summary of Literature Review – Weak form of Market Efficiency Sr. The results of both tests suggest that markets understudy were not weak form efficient. Runs Test 4 Barnes (1986) 5 Laurence (1986) 30 companies Kuala and six sector Lumpur Stock indexes for the Exchange six years period ended 1980 Kuala Lumpur and Singapore 1973 – 1978 Stock Markets Unit Root. The study concluded that stock prices on the BSE followed a random walk and reacted similarly to markets in the U.K. The results of both tests showed that the KLSE has indicated a high degree of efficiency in the weak-form of market efficiency. BSE Index.S. Correlation was positive but was not statistically significant. runs test and Alexander’s filter rule technique 2 Sharma and Kennedy (1977) India. Autocorrelation Runs and Autocorrelation Test 2 Prof. Name of the Author Year 30 individual stocks quoted in the Dow Jones Industrial Average Period of Study Methodology Used (Tests) Results Found Number of runs was smaller. Analysis of spectral densities of each index verified the randomness of the time series. the S&P 425 Index and the London FT Actuaries 500 Stock Index 23 stocks listed on the BSE in the period 1973 – 1978 Runs Test 3 Sharma (1983) Bombay Stock Exchange Unit Root. and U.V. Statistical tests show that there was not any dependence in the successive price changes and the magnitude was very small and concluded the DJIA to be weak-form market efficient. 1 Fama (1965) 1956 to 1962 Serial correlation test. and U. U. Institute of Management. The results indicated that price changes of stocks listed on the BSE possessed similar characteristics to those of other leading stock markets and concluded that stock price changes followed a general random-walk behavior. Nikunj Patel. Associate Professor | S. No. Kadi    .

Japan and Italy Runs Test. Serial Correlation Test He has used weekly data of indices and found that the 11 markets under study follow random walk model. K. Switzerland. Japan. Belgium. 8 9 US. United Kingdom. Run test. The result of Johansen’s co-integration test also supported market efficiency. France. Nikunj Patel. The United Kingdom. and Johansen’s cointegration tests 3 Prof. Institute of Management. Study indicates that market does not seem to be efficient even in its weak form. Canada. 49 showed lesser numbers of the runs and concluded that market understudy was not random walk. Germany. Kadi    . Their result from both ADF and KPSS tests showed that all seven time series seemed to contain a stochastic trend. Chaudhuri (1991) India 1988-1990 Serial Correlation.1988 Netherlands. Associate Professor | S. France. Canada. and Germany Kuwait and Butler and Malaikah Saudi Arabian 1985 – 1989 (1992) stock markets Roger Ignatius (1992) Bombay Stock Exchange The United States. All seven countries stock markets were efficient during the period. The runs test showed that out of 50 companies in Nairobi Stock Exchange. December has provided the highest mean monthly return while week 4 has the highest mean weekly return.V. Australia. Autocorrelation Test 10 1979 – 1990 Parametric and Nonparametric tests The Kuwait was found to be an efficient but Saudi Arabian market was not found efficient for the selected period. Lee (1992) 1967. The BSE showed seasonality in stock returns pattern. 11 Choudhry (1994) 1953 – 1989 ADF and KPSS unit root tests.6 Parkinson (1987) Nairobi Stock Exchange 1974 to 1978 Runs Test 7 S. Italy.

Brazil. Variance ratio test rejects the random walk hypothesis. The data series were significantly heteroscedastic. whereas runs test does not. so data were non stationary and rejected problem of unit root at first difference showed stationary in first differences.12 Dickinson & Muragu (1994) Nairobi Stock Exchange Argentina. Dechert and Scheinkman (BDS) non-linear tests 17 Istanbul Stock Antoniou. Institute of Management. By using statistical tests. Author found that Istanbul Stock Exchange (ISE Composite Index) became efficient with high trading volume. which showed the consistency of random walk.. Kadi    . KS test.V. Moving Average Model Prof. The result of Dickey Fuller tests showed the problem of unit root. Runs Test 14 Chang et al. Ergul. Chile. Using Autocorrelation and Runs tests. and Mexico Taiwan stock exchange 1979 – 1989 Autocorrelation and runs tests 13 Urrutia (1995) 1975 – 1991 Variance Ratio Test. Associate Professor | S. Nikunj Patel. BDS and serial correlation tests showed conflicting results against the DF and rejects random walk hypothesis. (1996) 1967 to 1993 Ljung-Box Q. reliable information and an appropriate institutional framework. and Holmes. the runs and the unit root tests 15 Sunil Poshakwale (1996) India 1987-1994 Serial Correlation. P. 16 Al-Loughani and Chappel (1997) United Kingdom stock market (FTSE 30) 1983 – 1989 LM serial correlation. The found that the Taiwan stock market is weak-form of efficient for the sample period This study has presented evidence concentrating on the weak form efficiency and the mean returns except for the Monday and Wednesday are positive. A. he found that the Nairobi Stock Exchange support the weak-form of market efficiency.. Exchange N. Run test. There were conflicting results of Variance Ratio and Runs test. DF unit root and Brock. (ISE 1988 – 1993 (1997) Composite Index) 4 Serial Correlation.

but not with monthly. Autoregression. Co. Serial Correlation.18 Martin Laurence. Their results reject the random walk hypothesis with weekly value weighted market index returns. Malaysia. Israel.integration test. Brazil. Results of both tests conclude weak form market efficiency and all markets are gradually being in global economy. Turkey Bangladesh 1993-1996 Unit Root Test.V. This paper indicates that the daily share return of market is not Random and Market is not weak form efficient. Mexico. Associate Professor | S. Thailand. 20 Asma Mobarek and Keavin Keasey (2000) 1988-1997 Auto-correlation test. Francisc Cai and sun Quin (1997) China Argentina. Results of runs test showed that the hypothesis of independence cannot be rejected for nine of the 15. Singapore. Chile. Indonesia. Hong Kong. Nikunj Patel. ARIMA model. 21 Chang and Ting (2000) Taiwan stock market 1971-1996 Variance Ratio Test 22 Abeysekera (2001) Colombo Stock Exchange (CSE) in Sri Lanka January 1991 – November 1996 Runs. 19 Karemera et al. Korea. Multiple variance ratio. Taiwan. (1999) 1986 – 1997 Single variance ratio. Kadi    . Runs Test Author found that the random walk model is consistent in the market understudy. Institute of Management. Autocorrelation and cointegration test 5 Prof. Granger Causality test. Philippines. Cointegration and correlation tests reject the serial independence hypothesis that concludes CSE was not consistent with the random walk hypothesis. quarterly and yearly valueweighted market index returns. No day of the week and month of the year effect found in the period. Jordan. The results of Runs.

K. ARIMA model) 28 Natalia Abrosimova. Autocorrelation using Qstatistic & Dickey-Fuller test. Found that random walk could not be rejected for the monthly data. Variance Ratio test. The results were also consistent with observations in different sub-samples. Kadi    . and Poland Indian stock market indices 1985 – 1997 Variance Ratio Test 24 1995-2000 Autocorrelation.23 Cheung. Author used Non parametric and Parametric test and found that the share return series don to follow the random walk model and also found significant auto-correlation coefficient at different lags that rejects the null hypothesis of weak-form efficiency. C. J. yet it could be rejected for daily data. Concluded the evidence behavior of random walk in all markets and indicate dependency with Czech and Hungarian markets to the Polish exchange. McManus (2001) Pant & Bishnoi(2001) Hong Kong stock exchange Czech Republic. A. Autocorrelation and Variance ratio tests.. Variance Ratio Test 25 1996 – 2001 Author has used both homoscedastic and heteroscedastic error variances to examine Random walk hypothesis and confirmed that Hang Seng follows a random walk hypothesis. and Coutts. Nikunj Patel. Cointegration and Granger Causality test. Unit root. and Bahrain variance ratio and runs tests 27 Mobarek et al (2002) Dhaka stock market in Bangladesh 1988 – 1997 Non-parametric (KS test and run test) and parametric test (Autocorrelation test. (2001) Claire G. The results support that Indian stock market indices do not follow random walk. Prof. . Gishan Dissanaike and Dirk Linowski (2002) 6 Russia 1995-2001 ARIMA and GARCH model. Institute of Management. (2002) three major Gulf stock markets including 1992 – 1998 Kuwait. Hungary.V. Associate Professor | S. Rejected the random walk hypothesis in all markets due to correction for infrequent trading and significantly alter the results of market efficiency and random walk test. Gilmore and Ginette M. 26 Abraham et al. Autoregressive model. Saudi Arabia. Variance ratio and autocorrelation test rejected random walk.

. M. G. Evidence does not provide any support for the proposition that the SSE is a weak-form.. Autocorrelation. variance ratio. the UAE is found to be weakform efficient. (2004) United Arab Emirates (UAE) stock market 43 stocks included in the UAE market index for the Period 2001 – 2003 Unit Root. Mondays were found to have higher standard deviations followed by Fridays showing the existence of market inefficiency clearly. 30 Gilmore. M. Authors found that the Kuwait Stock Market were weak form inefficient. Nikunj Patel.. C. and Almarket Saleem. Hungary and Poland 1995 – 2000 Unit root. K.29 Bin Liu (2003) China 1996-2002 Fama-MacBeth regressions. possible reasons for inefficiency is because of thinly trading in the most of the stocks in Kuwait Stock Exchange and the fact that their study covers the repercussion of various important regulatory reforms carried out. G. W. According to them. AlKuwait stock Sultan. A.V. 31 Hassan. autocorrelation. The study found that before introduction of rolling settlement in January 2002. Market efficiency has improved towards the end of 1990s. Institute of Management. The results from NAÏVE with ARIMA and Garch were consistent in rejecting the random walk hypothesis. Johansen and Granger causality Naïve. and McManus. 32 Moustafa. Authors has used Runs test and found the returns of 40 out of 43 stocks were significant at 5 per cent. Runs Test 33 Nath & Dalvi (2004) S&P CNX NIFTY 1999 – 2003 Robust regression with biweights and dummy variables 7 Prof. ARIMA and GARCH). J. (2003) Czech Republic. Authors have used Univariate and Multivariate tests that provided some evidences of weak form efficiency. Kadi    . GARCH-M and EGARCH Models This study adds evidence that is not favoring the weak-from EMH. According to his results. Associate Professor | S. M. Some mixed results were found using Variance ratio test of Lo and McKinlay (1988). (2003) 1995 – 2000 Logistic Map Model. Monday and Friday were significant days. A.

34 Worthington and Higgs (2004) Austria. Finland. Netherlands. All models except ARIMA (0. Kadi    . serial correlation. Poland and Russian. Dissanaike. Sweden and UK comply with random walk. 1987 – 2003 Switzerland. Institute of Management. Results of both 8 Prof. Ireland. and Linowski. Denmark. Belgium. France. three types of unit root and multiple variance ratio tests Found that of the emerging markets only Hungary is random walk whereas in the developed markets only Germany. 2) relatively accurate short term forecast. runs. autocorrelation and variance ratio tests. With the ADF and the PP unit root tests found to be stationary difference. G. Spain.V. Greece. Germany.. They have also used ARIMA and Garch to test serial dependence. Norway. Ireland. (2005) Russian Trading System (RTS) index 1995 – 2001 Unit root. Hungary. GARCH Authors used daily. Sweden. and the United Kingdom. Nikunj Patel. weekly and monthly data to test null hypothesis. ARIMA. Portugal. D. 35 Abrosimova. Italy. and four emerging stock markets: Czech Republic. N.. Associate Professor | S. The results provided some limited evidence of short term predictability on the RTS. Portugal.

but not for the post-crash. 40 Khaled. Kadi    . The autocorrelation test showed an evidence of no significant autocorrelation and the series did not have a problem of Unit root. Using Heteroscedasticity-robust tests. However for weekly data and daily data. Unit Root test Weak From efficiency for all markets while DF-GLS and ERS test not support Hence. but not for the monthly data. 37 Akinkugbe. M. Granger Causality test. and Islam. (2005) Dhaka stock market 1990 – 2001 Unit Root and Variance Ratio Tests autocorrelation and variance ratio tests reject the null hypothesis of the random walk for the daily and weekly. Cointegration test. Bangladesh and Pakistan 1996-2005 Pair-wise Correlation. the post-deregulation stock markets of South Asia appear in general to be efficient except in the case of Bangladesh and all the three markets are not dependent. Authors found that the results of unit root and runs test are similar and rejected random walk hypothesis in ISE.V. Associate Professor | S. Market efficiency could not be rejected in for monthly data. they found short term predictability of the stock returns. Institute of Management. In his study. Simon (2005) India USA 1996-2001 1995-2004 Serial Correlation MLR Model. and Augmented Dickey-Fuller and Phillip-Perron unit root tests 38 39 Ashutosh Verma (2005) Helen K.36 Arusha Cooray and Guneratne Wickremasinghe (2005) India. Over all the market is weak form efficient. (2005) Botswana Stock Exchange 1989 – 2003 Autocorrelation. Nikunj Patel. 41 Tas and Dursonoglu (2005) 9 Istanbul Stock Exchange 1995 – 2004 (ISE 30 Indices) Dickey-Fuller unit root and runs tests Prof. The findings supposition that market is Weak form Efficient. O. Author found that the Botswana Stock Exchange exhibited efficiency both in the weak and semi strong forms. Autocorrelation. A.. therefore implying weak-form efficiency. ANN Model. market efficiency was rejected for the pre-boom period. Sri Lanka.

AutoCorrelation 46 Asma Mobarek. Morocco. Analysis of the daily stock index returns of markets indicates that there are larger variations in returns during the study period and the markets are not efficient in the weak-form. Turkey and Israel 1996-2000 Variance Ratio. Institute of Management. Opong.V. Jordan. The limited support for weak form efficiency in Middle Eastern emerging markets implies a degree of predictability of returns. The market stock returns are conclusively not efficient in the weak form.Saudi Arabia. Farrar (2006) Collins Gyakari Ntim. Nikunj Patel. the Czech Republic. Overall results indicate that some of these markets are not weak form efficient. Study provides evidence that security of DSE does not follow random walk and remains inefficient. Autocorrelation.42 Mohammed Omran and Suzanne V. Basu (2007) Rengasamy Elango. Unit Root test. 43 Africa 1990-2005 Variance Ratio 44 India Dubai . 2001-2009 49 1999-2009 Prof. ARIMA. Auto-correlation. Kadi    . Rakesh Gupta and Suneel Maheshwari. GARCH-M. augmented Dickey-Fuller (ADF) and KPSS. KS test. Kuwait. Unit Root Test. 45 2001-2006 Run test. The results of these tests find that these markets are not weak form efficient. Qatar. neither from the perspective of the strict random walk nor in the relaxed martingale difference sequence sense. and Jo Danbolt (2007) Rakesh Gupta and Parikshit K. Autocorrelation. Kwaku K. Abu Dhabi. Hungary. 47 India 1990-2000 48 India Poland. K-S test. Associate Professor | S.Sabur Mohllaha and Rafiqual Bhuyan (2008) Batool Asiri (2008) P K Mishra and B B Pradhan (2009) Francesco Guidi. A. The study provides the evidence of weak form inefficiency of Indian capital market. Bangladesh 1991-2006 Phillips-Perron tests. Variance Ratio. The results suggest that current prices in the BSE reflect the true picture of the companies and which is follow random walk. (2010) 10 1988-2000 Runs test. Mohammed Ibrahim Hussein (2007) Egypt. Oman. Bahrain. Runs Test. Phillips-Perron tests augmented Dickey-Fuller (ADF) Autocorrelation.

 Nikunj Patel. Romania. Sri Lanka. Kadi    .A.K.. Runs test. Bulgaria. Auto -regression ARIMA It represents inefficiency of Indian capital market. Institute of Management.. Syad Z. Indonesia. India. China. Study indicates that no one market is weak form efficient among all markets. Korea. 11 Prof. Associate Professor | S. and Slovenia 50 P K Mishra (2010) Saif Sadiqui and P. The results of both indices suggest do not exhibit weak form efficiency. Muhammad T. (2010) 2004-2009 Auto-correlation. Malaysia 2000-2008 52 Kashif Hamid. Unit Root Test and Variance Ratio. Runs Test.S.Gupta (2010) India 1991-2009 Unit Root test.V.Slovakia. GARCH Model..Rana S. 51 India Pakistan. Hong Kong. K-S test Autocorrelation.

[7] Bhanu Pant and T. pp. “Weak-form Market Efficiency of Shanghai Stock Exchange: An Empirical Study”. No. International Journal of Emerging Markets. Kwaku K. Part 2. (2005). European Financial Management Association Conference. “Testing weak-form efficiency in the Bahrain stock market”. 12  Prof. Finance India. ENBS Conference held on Oslo. “Weak-form market efficiency of an emerging Market: Evidence from Dhaka Stock Market of Bangladesh”. Institute of Management.g: 7-17 [6] Batool Asiri (2008). “Market Efficiency in Emerging Stock Market: Evidence from Bangladesh”. p. “The study of the weak form informational efficiency in Bombay Stock Market”. “ Testing Random Walk Hypothesis for Indian Stock Market Indices” [8] Bin Liu (2003). [9] Claire G. 4. Associate Professor | S. [10] Collins Gyakari Ntim.Ratios Tests”. Journal of Emerging Market Finance 2008. [5] Asma Mobarek. 21984. 19. Opong. May 2000. R. Gilmore and Ginette M. Bishnoi. Rakesh Gupta and Suneel Maheshwari (2010).References  [1] Arusha Cooray and Guneratne Wickremasinghe.Sabur Mohllaha and Rafiqual Bhuyan (2008). 1. African Finance Journal. “The Efficiency Of Emerging Stock Markets: Empirical Evidence From The South Asian Region” [2] Ashutosh Verma. [3] Aslı Bayar and Ozgur Berk Kan (1999).3. Vol. MPRA Paper No. and Jo Danbolt (2007).38-53.g :77-90 [4] Asma Mobarek and Keavin Keasey (2000). McManus (2001). Kadi    . Nikunj Patel. p. June 2001. Vol. participants of 1999 Global Finance Conference. “Random-Walk and Efficiency Tests of Central European Equity Markets”. [11] Francesco Guidi. “An Empirical ReExamination of the Weak Form Efficient Markets Hypothesis of the Ghana Stock Market Using Variance. pp. “Weak-form market efficiency and calendar anomalies for Eastern Europe equity markets”.1421.V. Vol. “Day of the Week Effects: Recent Evidence from Nineteen Stock Markets”. 9. A.

(2005). 1. Muhammad T. Associate Professor | S. http://ssrn. “Testing the Significance of Calendar Effects”.. and Mark [22] Rakesh Gupta and Parikshit K. pp. Vol. INTERNATIONAL JOURNAL OF BUSINESS. “A Reexamination of the Dayof-the-Week Effect on the Indian Stock Markets”.1. Seyed Mehdian. “Tests of weak form efficiency in the Middle East emerging markets”. Syeda Faiza Urooj and Syed Umar Farooq (2010). Nason (2005). Multinational Finance Journal. 13  Prof. Simon. Studies in Economics and Finance. Vol. 58. N0. (2010).Kiran Mehta and Renuka Sharma. [16] Mohammed Omran and Suzanne V. Syad Z.(2008)..4. 20-29. [15] Martin Laurence. 3. The Research Network. Basu (2007): “Weak Form Efficiency in Indian Stock Markets”.1. Farrar (2006). “Testing the WeakForm Efficiency of the Russian Stock Market”. [20] P K Mishra (2010).291-307. 14 No. “Karachi Stock Exchange: Testing Month of the Year Effect”.” [14] Kashif Hamid. [19] P. K. 121-133.pp. [18] Nousheen Zafar. Asger Lunde. 6. 2004. pp. [13] Helen K. www. [17] Natalia Abrosimova. 23 . Mishra and B.No. European Journal of Economics. APPLIED FINANCE. Vol. International Research Journal of Finance and Economics. 1326. and Rana S.V. Francisc Cai and sun Quin (1997). Issue 24. Institute of Management. Kadi    . Pradhan (2009). “Weak-Form Market efficiency and Causality Test in Chinese Stock Markets”.frbatlanta. Centre for Economic and Financial Research. Nikunj [21] Peter Reinhard Hansen. 57-64. “Indian Capital Market – Revisiting Market Efficiency”. pp. “Testing the Weak form of Efficient Market Hypothesis: Empirical Evidence from Asia-Pacific Markets”.S.[12] Hassan Aly.A. pp. B. Vol. Gishan Dissanaike and Dirk Linowski (2002). 9(3). [23] Ramesh Chander. “An examination weak form of efficient market hypothesis within the context of NASDAQ composite index. No. pp. 5-20. and James M.(2004). 4. Working Paper 2005-2. “An Analysis of Day-of-the-Week Effects in the Egyptian Stock Market”. “Capital Market Efficiency and Financial Innovation”.301-308. pp. International Business & Economics Research Journal. Perry. No. Finance India.K. Kadi    . K.Gupta (2010). No 4. 17-21. Associate Professor | S.Evidences from selected NSE indices : http://ssrn. “Evidence on Weak Form Efficiency and Day of the Week Effect in the Indian Stock Market”. “An Empirical Analysis on The Weak-Form Efficiency of The GCC Markets Applying Selected Statistical Tests” [25] Rosa María and Alejandro Rodríguez Caro (2006). Mohammed Ibrahim Hussein (2007). [27] S. “Day of the Week Effect on European Stock Markets”.pp. International Research Journal of Finance and Economics. “Weak Form of Market Efficiency. pp. X. 16. Issue-2. International Research Journal of Finance and Economics.5570 [26] Saif Sadiqui and P. Vol. Chaudhuri (1991).[24] Rengasamy Elango. Vol. 14  Prof. [29] Ushad Subadar Agathee (2008). pp. “Short-run Share Price Behaviour: New Evidence on Weak Form of Market Efficiency”. Institute of Management. Issue 14. pp.V. “Calendar Effects and the Months of the Year: Evidence from the Mauritian Stock Exchange”. Nikunj Patel. [28] Sunil Poshakwale (1996).

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