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Chaos Theory, Non-Linear Behavior in Stock Returns, Thin Trading and Market Efficiency in Emerging Markets: The Case of the Istanbul Stock Exchange

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  • Alper Ozun

Abstract

This paper examines the weak form efficiency in the Istanbul Stock Exchange in the period between 1987 and 1998 by using daily ISE National 100 Index. Unlike previous empirical papers, it employs different methodologies to take account the effects of thin trading, non-linear behaviour in stock returns, changes in the volatility in the market and the time-variation in the market risk premium. By using chaos theory in physics, certain generalised auto-regressive models in econometrics and efficient market hypothesis in the financial theory, for the first time, we show that the ISE has been weak form efficient between 1987 and 1998 except for 1995 and 1996 in which there exists non-linear behaviour arising from risk loving and irrational behaviour of investors after 1994 economic crisis.

Suggested Citation

  • Alper Ozun, 1999. "Chaos Theory, Non-Linear Behavior in Stock Returns, Thin Trading and Market Efficiency in Emerging Markets: The Case of the Istanbul Stock Exchange," Istanbul Stock Exchange Review, Research and Business Development Department, Borsa Istanbul, vol. 3(9), pages 41-74.
    • Handle: RePEc:bor:iserev:v:3:y:1999:i:9:p:41-74
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    1. Antonios Antoniou & Nuray Ergul & Phil Holmes, 1997. "Market Efficiency, Thin Trading and Non‐linear Behaviour: Evidence from an Emerging Market," European Financial Management, European Financial Management Association, vol. 3(2), pages 175-190, July.
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